Stock markets are expected to open higher after the release of US jobs data. This showed an additional 261,000 jobs in October and while below Wall Street expectations of 310,000 it still continues the positive trend. Unemployment overall fell from 4.2% to 4.1% as markets continue to return to some kind of normality in light of the storm season which heavily impacted September’s figures.
There are many different ways of calculating employment and unemployment in the US but one of the broader measures, including discouraged workers and those in part-time employment, continued the downward trend. This rate fell from 8.3% in September down to 7.9% in October which is impressive bearing in mind 12 months ago the figure was 9.5%.
US economy continues to grow
While some analysts had expected better jobs data, in many ways a dampening of short to medium term expectations is not a bad thing. The US economy continues to expand, unemployment is falling and with figures indicating 3% GDP growth in the third quarter there are reasons to be cheerful. The CNBC tracker indicates that fourth-quarter GDP growth is currently standing at around 2.8% which is slightly down on the third quarter figure but still very respectable.
In is common knowledge that the Federal Reserve is planning to increase the US base rate in the short to medium term. Indications suggest that we should expect upwards of two further interest rate rises in the short to medium term. However, do the economic figures support this strategy?
Inflation
US inflation is currently running at around 2.2% against the Federal Reserve target of 2% and wage growth is still fairly low at just 2.4% per annum. These are not necessarily the figures which the Federal Reserve would have hoped for to support the already flagged increase in the US base rate. If there was rampant inflation and rampant wage growth this would have played into the hands of the Federal Reserve but in many ways they have already shown their cards. Indeed, many analysts believe that the next couple of US base rate increases have already been factored into the market.
As base rates do gradually increase this will push mortgage payments higher and leave less household expenditure for use in other areas. This should have the effect of weakening consumer inflation and hopefully taking the sting out of any potentially uncontrollable rally in the US economy.
Steady as she goes
US stock markets are obviously a good barometer of the underlying economic situation and the gradual improvement over the last year has been impressive. The historic volatility seems to have disappeared for the moment although we all know that markets can and do change overnight and can become extremely volatile. The battle between Donald Trump and the Federal Reserve is still ongoing but as long as the US economy and stock markets are doing well this dispute can carry on in the background.
Supporters of the previous President Obama will no doubt suggest that the foundations for the ongoing recovery in the US economy were laid some time ago during his tenure. This does seem to be the case from a distance but no doubt Donald Trump will at some point claim responsibility!