Is the US economy improving? (Update as of April 2015)

The Bad

1. Less Jobs Created in March 2015
On 3rd April 2015, the U.S. Bureau of Labor Statistics released its Non Farm Payrolls data. The US job creation machine did not continue its strong trend of the past five years of producing more than 200 thousand jobs a month. Instead, for the month of March 2015, Non Farm Payrolls in the United States increased by just 126 thousand. This break in trend has caused investors to lose some confidence in the strength of the US economy’s recovery. And it may cause the FED to consider further delaying monetary policy tightening during the next FOMC meeting later this month.

2. Low Wages
The US average hourly earnings are growing at a rate of just 2%, which is roughly the same as 5 years ago. This current rate is nowhere near pre-crisis rates. This may indicate that there is a slack in the labour market, meaning that there are more employees available than required by companies. For the US economy recovery to gain credibility, wages must start improving soon.

3. Weak Bottom Line of US Companies
The recent trend has been for companies to engage in major cost-cutting and cheap financing for share buy-backs and dividends in order to boost their bottom line. However, a strong economy requires an increase in actual revenues from an improved business environment.

The Good

1. The US Job Creation Machine is back


Despite the dismal March jobs data report, it is still important to note that there have been more than 200 thousand jobs created per month for the past five years. This is a strong indication that the US economy is going back on track and the slight falter in March may not be a strong cause for concern.

2. Decreasing Unemployment Rate


The United States Unemployment Rate has been decreasing at a steady rate for the past 5 years. This is a healthy trend. For the month of March 2015, the US unemployment rate was just 5.5%.

3. Increasing Wages According to NFIB Compensation Measure
According to The National Federation of Independent Business (NFIB) Compensation Measure, small businesses have been raising wages for workers. This indicator correlates closely with the US government’s quarterly employment cost index, which is generally considered a better gauge of wage growth.

The Unknown

US Corporate Earnings for 1st Quarter of 2015
Another important indicator is US corporate earnings. The earning seasons kick off on Monday, and investors will be looking to see how US corporates did for the 1st quarter of 2015. However, estimates have not been optimistic. The strengthening US dollar, coupled with falling oil prices, have taken a toil on US earnings. For US multinationals, the stronger dollar weakens their foreign-based earnings. Falling oil prices lead to lower prices which further weaken earnings.

With all the above factors in mind, it will be interesting to see how the US economy fares for the rest of 2015.


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