Goldilocks jobs

by: , Managing Director, Economist, and Portfolio Manager, New York Life Investment Management; Lauren Goodwin, CFA, Economist and Multi-Asset Portfolio Strategist, New York Life Investment Management

The labor market continues to strengthen as unemployment maintains its downward trend. Even with gradual growth in the labor force, the July jobs report reflects what we would expect to see at full employment – in other words a “goldilocks” report. Even though the headline jobs increase of 157,000 is somewhat lighter than expected, when we include revisions of 59,000 to the April and June reports, the overall labor market picture continues to remain positive.

U.S. employment

Nonfarm payrolls, 1,000 persons

Sources: Thomson Reuters Datastream, New York Life Investments, as of 7/31/18.

As more people join the labor market – with declining numbers of discouraged job seekers and workers considered part time for economic reasons – overall wage growth may be dampening. Still, monthly wage growth of 0.3% would translate to 3.7% annualized wage growth if it continues. Year-over-year wage rates appear stuck for now, but will likely trend upward gradually in the coming months. Even with moderate wage growth, we may see a boost in household spending, but not enough to signal any economic overheating.

Average hourly earnings

August 2013 – July 2018

Sources: Thomson Reuters Datastream, New York Life Investments, as of 7/31/18.

A strong labor market continues to act as the foundation of our positive view on the U.S. economy. Last week’s initial GDP numbers, supported by strong manufacturing and retail sales data, continue to create opportunities for a well-positioned portfolio. And, given the broad-based jobs growth across sectors and good manufacturing jobs figures, it doesn’t appear that trade tensions have been a significant factor for growth.

Bottom line

Risks to price and wage inflation are likely on the upside, driven by a tightening labor market, a strong economic backdrop, and the potential for tariff impacts via import prices. While structural factors, such as the rapidly expanding digital economy, help put a lid on price pressures, inflation risk will likely be top of mind for investors in the second half of this year as the Fed continues to tighten policy—potentially creating currency volatility and headwinds for fixed income.

Equity markets welcome the encouraging economic trends, which bode well for profits and revenues.

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.

About Risk

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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

Full Bio

Lauren Goodwin, CFA

Economist and Multi-Asset Portfolio Strategist, New York Life Investment Management

Lauren Goodwin, CFA is an economist and multi-asset portfolio strategist with New York Life Investment Management’s Strategic Asset Allocation & Solutions (SAS) Group, which has $10B in assets under management. She joined NYLIM in 2018 to focus on global macroeconomic trends

Full Bio

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