Things Are Looking Up for the US Economy as Americans Celebrate 4th July

The Independence Day holiday in the United States is a chance for a celebration and it gives observers the opportunity for an earnest look at the state of the US, as a country. For us of an economic tint, it seems the picture has become a lot rosier in the past week, certainly worthy of a few fireworks in its own right.
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The Independence Day holiday in the United States is a chance for a celebration and it gives observers the opportunity for an earnest look at the state of the US, as a country. For us of an economic tint, it seems the picture has become a lot rosier in the past week, certainly worthy of a few fireworks in its own right.

The Federal Reserve, the US central bank, is currently encountering a similar problem to what the Bank of England has been experiencing in the past year; an economy that is seeing its jobs market improve at a much faster rate than the central bank ideally wants, or has predicted.

Of course, a central bank would never say that the jobs market is improving too quickly - who wishes against people getting jobs in such a politicised landscape - but internally they will be wringing their hands as to how it affects their guidance on interest rates.

June's non-farm payrolls announcement, the most closely watched job indicator from the United States, saw 288,000 jobs added during the month. To put that into context that is roughly the population of Newcastle. In the past 3 months, it has added 816,000 jobs - slightly less than the population of Liverpool. These are a huge numbers for an economy that supposedly shrank by an annualised rate of the 2.9% in the first 3 months of the year, courtesy of the horrendous weather it suffered.

With these improvements the unemployment rate has fallen to 6.1% in the United States. It was 7.5% 12 months ago. Even only 2 weeks ago, the Federal Reserve had only thought that we would see this kind of strength by the end of the year.

We also saw wages rise by more than expected as they gained by 2.0% in the past 12 months. Janet Yellen, the Chair of the Federal Reserve, said in questioning following last month's Fed meeting that "my own expectation is that as the labour market begins to tighten, we will see wage growth pick up some". We are a long way from a tight labour market in the United States at the moment but, once again, the signs are encouraging.

As I have hammered on about in the last few months, the Federal Reserve is broadly happy about the situation and improvements in the jobs market; how could it not be? Its issue is with the lack of inflation. This is the missing piece of the puzzle, and once found, will allow those of a more hawkish persuasion within the FOMC to become more vocal on the need to raise rates. It is now time to go back to watching Fed speaker's individual comments and pick out who amongst the policy makers believes that the ensuing tightness in labour conditions necessitates a chat about rate rises sooner rather than later.

Independence Day is a great time to be in America. I say that as Brit who believes that July 4th 1776 was simply the day that Britain decided to keep India instead. Joking aside, it now seems that the jobs market in the US is seeing an increase in the quality of life, liberty and the pursuit of happiness.