Jobs report misses expectations; inflation worries tick up

posted by Simply Money -

The big news last week was the jobs report, which was slightly underwhelming.

The economy added 148,000 new jobs in December, much fewer than the expected 190,000. The weakness stemmed from a drop in jobs related to the service sector, like retail. It’s likely that we’ll see a rebound in the January data partly because there was strength in other areas, especially goods-producing jobs.

Otherwise, the healthy job additions from the manufacturing industry point to a broad economy that remains in good shape. The jobs report also showed the unemployment rate remained at a 17-year low of 4.1%.

As the U.S. economy approaches full employment, many economists are wondering how much lower the unemployment rate can go and what that will mean for inflation. The 17-year low unemployment rate suggests that your pay should increase because there are fewer workers to hire, but wage inflation is only 2.5% higher over the past year.

Other measures of inflation - such as Consumer Price Index (CPI), Producer Price Index (PPI), and Personal Consumption Expenditures (PCE) - also indicate that prices are not rapidly rising. We will get an update on CPI and PPI this week. We expect this inflation data to continue to show low inflation.

The fear of rising inflation in 2018 is on many economists' minds because that will be one of the main factors for the Fed in its decision to raise short-term interest rates. But low and steady inflation means the Federal Reserve (Fed), our nation’s central bank, has no reason to quickly raise short-term interest rates.

Simply Money Advisors expects the Fed to increase short-term interest rates two or three times in 2018. There is a 76% chance of a hike by the Fed's March 21st meeting.

On another note, your spending (consumer spending) this past holiday season appears to have been the best since 2011. This is great news for the economy, which probably grew around 2.5% in the final quarter of 2017.

This increase in spending is also good news for corporate profits and your investments. Historically, as companies earn more money, the value of their stocks increases.

The Simply Money Point 

Simply Money Advisors expects another good quarter for corporate profits. This is also good news for investors, like you, because an increase in corporate profits may benefit the stock portion of your investment mix.

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