United States

Tight labor market reflects difficulty of finding available workers


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The U.S. labor market has tightened to the point where firms are having tremendous difficulty finding qualified and available workers. The American unemployment rate has declined to 3.9 percent and likely on its way to 3.7 percent later this year. Once the late-cycle fiscal boost hits the economy in the second half of 2018, there is a significant risk that unemployment rate will decline at a faster pace. That will present a problem for the Federal Reserve, which will likely want to tighten interest rates at a modestly quicker pace even as the U.S. yield curve flattens. However, with wage gains remaining sluggish, average hourly earnings slowed to 2.56 percent, or a 2.48 percent three-month average annualized pace, which may add to the discontent of the domestic labor force.

The top-line gain of 164,000 jobs is well within what we have thought would be a slower pace of jobs creation as the United States heads towards the late innings of the current business cycle. It is always important to note that the economy only needs to generate roughly 80,000 jobs per month to keep the unemployment rate stable, so we expect the monthly number to head in that direction, even as growth in the overall economy continues to perform well above its 1.5 percent long-term trend.

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