The latest nonfarm payrolls data showed the US economy added 280,000 jobs in May, which reassures investors that the jobs trend is clearly above 200,000 gains per month, said Jan Hatzius, chief economist at Goldman Sachs.
There was some doubt after March’s very weak employment report – the economy added only 85,000 jobs for the month, before the upward revision came in Friday. Also, April’s reading of 223,000 raised the question whether the jobs growth trend weakened to less than 200,000. But with May’s number, investors’ can lay that concern to rest as the trend is clearly above 200,000, he noted.
While the jobs report show solid improvement, consumer spending data has continued to disappoint. Asked to explain this disconnect, Jan said labor market data and generally the survey data has also been better than retails sales, and ultimately GDP data because retail sales is the most important input and contributes nearly 70 percent to US GDP. The GDP data has been weaker than the general message conveyed by the other parts of economic-data universe. It would prudent to put more weight on labor market numbers and the surveys because there are likely to be less measurement errors in those than GDP numbers, he explained.
Wages have grown 2.3 percent over the last 12 months, which is pretty tepid. Asked to elaborate, Jan said though wage-inflation has generally remained weak, data points from the last few months suggest things are starting to pick-up.
The Employment Cost index for the past few months show compensation figures have been a little bit stronger. Though the numbers are still not definitive, one more reading – particularly the print coming out in July, would be important and would prove to be definitive, he observed.
The latest high-frequency data resembles more closely last year’s data. Asked if it could be inferred growth is picking up again, Jan said the economy has slowed from the pace witnessed at the end of last year.
When the underlying indicators were extracted from the headline economic numbers, it showed the economy expanded at a 3.5-4 percent annual pace in much of the latter part of 2014.
But the economy is no longer growing at a similar pace; that said, the US economy is still growing at a pretty solid 2.5–3 percent annual pace and investors can disregard the sharp 0.7 percent contraction in the first quarter. While the pace is good, it’s still lower than last year, he concluded.
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