In the United States (US) 213.000 new jobs will be created in June. Wages are also 2,7% higher, compared to 1 year earlier, and unemployment rose from 3,8% to 4%. Each and every one of them is not only good, but great news about the US economy.
The fact that there are 213.000 new jobs coming is good news. This is because that figure indicates that the American job machine continues to run at full speed. 120.000 jobs per month are needed to accommodate the increase in the working population. With more than 200.000 jobs every month, the American market more than absorbs this. This offers job seekers opportunities to find a job and it offers workers the opportunity to land a better job.
The fact that there are plenty of jobs and opportunities means that companies increasingly have to fight for labor. A good way to retain employees is to offer them higher wages. Hence, wages in the US increased by 2,7%. And that percentage is quite close to the ideal percentage.
Purchasing power does not decrease
By this I mean that a wage increase of 2,7% ensures that working people do not see their purchasing power decrease. Inflation is currently around 2% to 2,5%, depending on the chosen benchmark, which means that workers often improve slightly. That's good news, because it means they have more to spend.
There is a second reason why that is good news. This is because they then become more optimistic about the future. That makes them want to spend more. The money rolls, and that means that economic growth will remain high.
Rising costs?
However, a wage increase of 2,7% is not so high that it can be expected that companies (faced with rising costs) will increase their prices. If that were to happen, there could be upward pressure on inflation. This would not only mean that working people would see their purchasing power decline, but also that the Fed would have to raise interest rates faster and more sharply than the bank now wants.
In short: the above means that for the time being the US is faced with a combination of slightly increasing purchasing power, increasing optimism and the prospect of slow and limited interest rate increases.
Rise in unemployment
The increase of the unemployment is excellent news. U.S. unemployment rose in June as more people struggled to find jobs. They register and are only then classified as unemployed. Previously, they did not bother, because they were convinced that the chance of finding a job was nil. The fact that they now register as unemployed indicates that they estimate that chance to be significantly higher.
One of the consequences is that (even if the number of new jobs remains high) there will be no upward pressure on wages. After all, the pond from which the companies can fish will automatically fill up. This also means that no improvement can be expected. However, purchasing power can also increase due to other developments, for example because income taxes fall (and households therefore have more net savings). Let the American president Donald Trump are now planning to reduce that tax considerably.
Leave plans unchanged
Macroeconomically speaking, it means that the Fed does not have to change its plans to slowly raise official interest rates. This is because more/faster interest rate increases are not necessary. Since low interest rates support stock prices and prevent potential problems (among highly indebted households and companies), this provides sufficient reason to remain optimistic about the development of the US economy in the rest of 2018 and into 2019.