Rate hike arguments find new footing


Rate hike arguments find new footing

156,000 new jobs added

On Friday it was made public that there was an additional 156,000 jobs added to the U.S. workforce. This will surely raise calls for a rate hike in the coming weeks.

The unemployment rate rose slightly to 5.0% but this is due to the fact that the labour force grew by 440,000 individuals. This was said according to the government data.

The same government data has showed that 3 million people have joined the labour force. This is being taken as a sign of rising confidence in the labour market and the economy in general. A stronger more robust economy is able to better withstand economic shocks and the data is definitely leaning towards that opinion.

In fact there is overwhelming evidence in some cases to show that the economy is on the right track. There has been a lot of complaints about hiring recently. Employers have been complaining that they cannot find the right candidates for the roles that they wish to fill; even though this is partially to blame on the employers themselves. What is important is however is that there is a demand.

WIth the supply unable to meet the demand wages have had to rise. On average there has been a 2.6% rise in wages for hourly work. The levels of wages have started to come back to post recessionary levels. The last time hourly wages rose this much was around July of 2009 (According to the Bureau of Labour Statistics).

Price changes and Consumer confidence
The rising wages is bound to offset rising prices of goods and increase consumer spending. In this environment a rate hike may negatively affect the markets but a rise in consumer spending and consumer confidence will bolster some of those fears.

The consumer price index that was last published in August 2016 has shown that the 12 month change is around 1.0%. WIthout food and energy it is around 2.3%. This means that consumers will have more purchasing power.

The consumer expenditure has been rising year on year. Where the period between July 2014 to June 2015 has been 5.9% higher than the previous period of June 2014 to July 2013. It is expected to be higher still for the current period.

However does this all translate into a possible rate hike.We will know for certain in the coming weeks. The markets will definitely react wildly to this news.This is almost confirmation of similar news that has been in circulation for several months now and it will be reflected in the market volatility. This may be an opportune time for the FED to raise interest rates, so lets see what they do next.