Unemployment at 3.8%

by: , Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

U.S. job growth accelerated in May. The U.S. economy added 223,000 jobs, well above economist expectations of 190,000. Additionally, previous estimates for March and April were revised upwards by a combined 15,000 jobs. Job gains were broad based, and the unemployment rate hit 3.8% – a level not seen since April 2000. If unemployment declines further in the months ahead – likely given current trends in job growth – the unemployment rate will reach levels not seen since the late 1960s.

U.S. employment

Nonfarm payrolls, 1,000 persons

Sources: Thomson Reuters Datastream, New York Life Investments, as of 5/31/18.

Average hourly earnings also picked up (+0.3%), lifting the annual increase to 2.7% – one of the strongest readings of this cycle. In January, when wages accelerated rapidly, the market sold off, due to fears of accelerating inflation and rapid Fed tightening in the market. Today, however, after three months of soft increases, the market may be more welcoming to an uptick in wage growth.

Average hourly earnings

May 2013 – May 2018

Sources: Thomson Reuters Datastream, New York Life Investments, as of 5/31/18.

The very solid employment report is yet another indication of robust economic data for the United States. Recently, higher retail sales, strong consumer spending, a pickup in industrial production, and still moderate inflation all point to a solid second quarter for the economy.

Bottom line

The pace of job growth is solid, and the U.S. economy remains on solid footing in the second quarter. With unemployment now approaching levels not seen since the late 1960s, inflation risks will continue to be on the radar screen for investors and the Fed. This means headwinds for fixed income. Meanwhile, equity markets welcome the solid trends in hiring and household incomes, which bode well for business revenues and profits.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. New York Life Investments does not guarantee their accuracy or completeness, nor does New York Life Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

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Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist, and Portfolio Manager with New York Life Investment Management’s Strategic Asset Allocation & Solutions (SAS) Group

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1 Comment

  1. This is a very refreshing report and one filled with hope and potential prosperity for all in the United States. Regrettably, it is a far cry from anything that we’ll hear on the “traditional” “Mainstream Media. Thanks for the update and being honest and gutsy enough to publish it!

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