Muoio: ‘Economy Has Roared Back to Life’
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IRVINE, CA—The national employment numbers for June, released this past Thursday due to the holiday falling on a Friday, offered cause for a Fourth of July celebration. Economists from Auction.com and Cassidy Turley duly lit off some fireworks, with Auction.com Research’s Chris Muoio observing that “The economy has roared back to life this spring and summer, and will certainly keep the federal government on its current monetary projections, if not have them peeking at accelerating the process.”
At Cassidy Turley, Washington, DC-based Kevin Thorpe notes that June’s employment reports “reflect the economy’s strength.” The Bureau of Laor Statsitics reported that the US economy created 288,000 non-farm jobs last month, “easily beating the consensus forecast of 210,000.” Further, the BLS revised upward the figures for April and May, “adding 29,000 more jobs to the employment base than originally reported.”
Accordingly, says Thorpe, chief economist, US research at the firm, “The US economy is finally nearing its potential. Absent the weather-induced first-quarter flop, real GDP growth has averaged 3.0% since the second quarter of 2013. For perspective, the current rate of growth exceeds the average 2.6% GDP growth rate from 2005 to 2007—commonly referred to as the last real estate boom.”
That momentum, he adds, is continuing. “Over the past two weeks, we have learned that auto sales surged to an eight-year high, existing-home sales reached a two-year high and consumer confidence registered a six-year high,” Thorpe says. “Real GDP is tracking somewhere between 3% and 4% in the second quarter and is expected to hit similar levels in the second half of the year.”
Aside from a brief stretch in ’05, “one has to go back to the late 1990s to find stronger numbers,” Thorpe says. Senior associate and economist with Auction.com Research, Muoio notes that the gains have been broad based, with employment growing in construction, healthcare, energy and, to a lesser extent, government. The wave of temporary hiring is finally ebbing, he adds, and is giving way to more permanent positions.
“In addition to the strong headline payroll figure, the unemployment rate posted a small decline,” says Muoio. “Unemployment fell 20 basis points from the month prior to 6.1%. Labor force participation remained steady once again at 62.8%,” its level for the past nine months. That compares to 66% before the recession. ”Labor force participation remaining at its lows still points to additional labor market slack not captured by the unemployment rate alone, but the decline appears to have ended for the cycle, indicating a firmer labor market backdrop."
Looking ahead, Thorpe notes that although the economy is finally revving up, the Federal Reserve isn’t likely to change its present course with regard to monetary policy. “The core personal consumption expenditures index, the Fed’s preferred measure of inflation, was 1.4% in May, still well below the Fed’s target rate of 2%,” he says. “Moreover, although wage inflation is edging higher, that too remains relatively weak, still slightly below 2%. Thus, the Fed will continue with its tapering program but likely will not raise short-term interest rates until late 2015.”
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