Inflation Comes Next

If the Federal Reserve is waiting for the economy to slow down before it eases interest rates, there is no doubt that they are watching the monthly jobs report for a significant clue. Thus far this year, there has been no sign that the economy is producing less jobs each month. The pace of the creation of jobs is fueling consumer spending which in turn is fueling a healthy economy. Thus, Friday’s jobs report was watched intensely by members of the Fed, as well as every market analyst in the country.

So how did we fare? Last month we added 303,000 jobs and the headline unemployment rate fell to 3.8%. In addition, the previous two months of job gains were revised upward by 22,000 jobs. Another important indicator the Fed is watching is wage inflation. Last month wages grew 0.3 % from the previous month and 4.1% year-over-year. Subject to further revisions, the economy now has added over 800,000 jobs in the first quarter of the year. How strong is this jobs market?

The economy has added jobs for 39 consecutive months, marking the fifth-longest period of job expansion on record. The unemployment rate has been below 4.0% for 26 months in a row, the longest streak since the late 1960s. The markets have been expecting the Fed to lower interest rates at their June meeting. However, this benchmark has been in question based upon recent inflation numbers and Friday’s jobs report makes a decrease even less likely. Next on the agenda? You guessed it – the consumer and producer price indices. The CPI will be released tomorrow.