US: Employment growth has been edging down - SocGen

Kit Juckes, Research Analyst at Societe Generale, explains that Friday’s US employment report was more of the same old story: Employment growth has been edging down since peaking above 2% in H1 2015, but at 1.6% it’s close to the average of the last 50 years (1.7%).

Key Quotes

“The problem is that GDP growth has averaged 2.8% over those 50 years, but productivity growth is much, much lower now. The lack of productivity growth and the (partial) demise of the Phillips curve are probably the most-studied parts of economics at the momentum. On productivity, the wisest observation I’ve seen is that it is unlikely to return on its own without policy action. Meanwhile, with the labour force growing at about 0.8% per annum, trend growth is around 1 ½%, and the current 2% rate is dependent on eking out a further fall in the unemployment rate.”

“All of which leaves the Fed observing the decent gains in employment, and the modest wage growth, which support a June rate hike, but don’t point them in the direction of any longer-term sense of urgency. The desire to get inflation back to its 2% target (for the PCE deflator) outweighs any sense that they need to get rates to the FOMC’s projected long-term ‘dot’ at 3%.”