07/07/2016
American Job Market Roars Back to Life, But Economy Still Fragile

American Job Market Roars Back to Life, But Economy Still Fragile

After a sluggish spring, the job market ramped up dramatically in the month of June. American employers are hiring at brisker rates than have been seen since last fall, bolstering confidence in what many were considering a worrisome economic landscape. Investors are breathing a sigh of relief at labor market’s strength, which is generally seen as a health indicator for the economy at large — but there’s more to the jump than meets the eye.

By the Numbers

In a strong rebound from May 2016’s weak performance, June saw non-farm payroll numbers rise by approximately 287 thousand. This increase sets a dramatic high-water mark for 2016 overall and represents one of the strongest months since the Great Recession of 2008, rivaling even 2011’s famed resurgence. It also outpaces estimates from economists surveyed by the Wall Street Journal, who predicted an increase of approximately 165 thousand new jobs.

Putting the Numbers in Context

Despite the impressive figures, the market’s growth is no Cinderella story. A broader overview of the forces at play reveals some factors that will put the numbers in better context.

• Verizon Communications

A massive strike by Verizon Communications workers was a major contributor to both the spring’s dismal performance and the summer’s strengthened one, shaving off 35 thousand jobs at the beginning of the strike and adding them back in at its conclusion.

• Long-term Considerations

And while June’s excellent performance bolstered Q2’s jobs added to 147 thousand overall, the figures are still weak compared to Q1 (at 196 thousand) and Q4 2015 (229 thousand).

• Brexit

The effects of Britain’s departure from the European Union (popularly known as “Brexit”) are yet to be felt in domestic labor markets. As we mentioned in a recent blog, the market’s reaction to the news was probably overdone. Nonetheless, the situation is volatile and could still disrupt economic activity across the globe in ways that are effectively unpredictable. Indeed.com’s chief economist Tara Sinclair characterized American hiring trends as “general[ly] cooling,” while cautioning that uncertainty over Brexit may dampen job growth in upcoming months.

• Interest Rates

While it is generally inadvisable to base investment strategy on a single-month report, the data sheds new light on economic landscape issues that affect investment portfolios. While financial officials are expected to wait until Brexit’s effects are felt to make announcements, the summer hiring jump is a key support for the US economy’s overall stability. If growth continues through the remainder of Q3, another Fed interest rate hike could be on the table as soon as the fall.

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