Wall Street analysts received a welcome surprise on Friday 10th March when unemployment numbers were reported. A figure of 4.8% unemployment was forecast, but an actual figure of 4.7% came in. The unemployment rate ranks among the best since December 2016 and adds plenty of momentum to calls for multiple rate hikes in 2017. The total number of unemployed persons remained roughly unchanged at 7.5 million, but the LFPR inched 0.1% higher to 63%. The total number of new jobs created in February was 235,000, making it even more likely that the Federal Funds Rate (FFR) would rise yet again.
Strong Gains Reported in US Economy
The strongest jobs gains in the US economy were reported in mining, healthcare, construction, and manufacturing. That the US unemployment rate dropped from 4.8% to 4.7% is notable. Of importance was the year-on-year increase in wages, +2.8%. The Federal Reserve Bank has been pushing for full employment and rising inflation in its calls to steadily tighten the FFR. Now, it seems all but a done deal. The CME Group FedWatch tool has the likelihood of a FFR hike at 88.6%, virtually unchanged as we head into Wednesday. As for the number of people in long-term unemployment, a figure of 1.8 million was reported for February. Over the course of 1-year, total long-term unemployment in the US decreased by 358,000. While inflation figures have been increasing, they remain below the Fed’s key level of 2%. Meanwhile, Fed Chair Janet Yellen believes that it would be appropriate for the Fed to raise interest rates in March.
Will Congress Push for Tax Reductions?
The White House and Congress are looking for ways to enact tax reform. Recall that Trump and House Speaker Ryan want to cut corporate taxes to 15%, perhaps 20%. The Republican-controlled Congress is also looking for a major overhaul of the tax system. This is certainly an ambitious undertaking and one that is unlikely to gain traction anytime soon. The White House wants to inject fresh stimulus into the economy by way of massive fiscal expenditure. Figures of $50 – $80 billion have been bandied about for infrastructure growth, military upgrades and rooting out urban decay. For now, it remains unclear how many rate hikes the Fed will push through in 2017. Some analysts believe that figure could be 3, while some believe it could be 4. Such is the nature of full employment in the US that a recent study commissioned by the National Federation of Independent Business (NFIB) indicates that vacancies are simply not being filled at many companies.
