Looking Past Media And Political Distortions, Economic Conditions Are Strong
Americans often see the economy from a prism that distorts reality. With the nation polarized and the media pandering for an audience, facts important to managing wealth for the long-term are all-too often distorted.
For instance, on Friday, the Bureau of Labor Statistics announced that 138,000 net new jobs were created in May, and much of the press coverage was not a true reflection of the facts.
CNBC, the nation's leading basic cable TV financial channel, called the new-jobs number "weak." While it is true that slightly fewer jobs were created in May than in April, the 138,000 new jobs figure is actually strong.
If you look at the new-job creation figure for May in the context of the economic cycle, which is in its ninth year of expansion, new-job creation is being limited by the demographics of the American workforce. The U.S. is running out of working-age people. This is not such a bad thing.
The unemployment rate was also released Friday and it ticked down a tenth of 1% to 4.3%. That's lower than the 4.4% bottom in the last expansion.
While the financial press does not always reflect it, the unemployment situation is excellent and companies are having trouble finding people to hire, which limits job creation.
Baby boomers are retiring and falling out of the labor pool. Consequently, signs like this at a Home Depot in Denver, inviting 16-year-olds to apply for jobs, have started popping.
When was the last time you saw a sign inviting high-schoolers to join the labor force?
When the labor market tightens, wages and other compensation rises.
CNBC, whose audience reportedly has the highest income among all U.S. cable-TV channels, is not alone in distorting economic reality, which often is complex and filled with important subtleties.
Average hourly earnings figures for May were also released and real wages are rising at a fast clip.
At 2.5%, average hourly earnings in May were accelerating over the nine-year average rate of growth in hourly earnings of 2.1% that occurred in the last economic expansion.
Reflecting the tighter labor conditions, employee compensation is very strong, according to figures released on Tuesday, May 30. Employee compensation, which includes benefits as well wages, is an important statistic to watch because it's the single largest driver of consumer income, which accounts for 70% of economic growth.
Employee compensation grew by 3.6% in May compared to 12 months earlier. That's much higher than the 12-month growth averaged at the peak of the last economic expansion, when wages and benefits averaged a 3% rate of 12-month growth. This bodes well for future growth in the economy.
Meanwhile, the latest data on inflation is benign. So, compensation is rising with low inflation, which means real income is growing and gives consumers more to spend and save.
The Standard & Poor's 500 index closed at a new all-time high on Friday at 2439.07. It was up 1% for the week.
With the media and partisan politics distorting the facts, world news breaking daily, and stocks priced near an all-time high, a correction of 10% or 15% in the stock market could occur at any time. Looking through the distortions in the media and personal political biases, however, economic conditions are strong.
This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.
Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.
PCED is the personal consumption expenditures deflator. Core PCED is the personal consumption expenditures excluding the volatile food and energy categories deflator.
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate).
U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.
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