'Tis The Season of Steady Economic Growth
December 12, 2017
By Tom Limoges
Trust Investment Officer
Driving around our city the other night, my wife noticed the amount of new businesses being developed. She was concerned for all the workers out in the freezing cold weather, yet I immediately thought of the economic implications this has on our community, especially during this time of year. Many families are rushing to finish (or in my case, begin) holiday shopping. This led us to discuss; what is the relationship between employment, economic activity, and the financial markets?
Economic activity in the U.S. has improved significantly since the last recession nearly a decade ago. In addition to a stronger stock market and higher economic growth, the unemployment rate has improved by steadily declining after peaking at 10%. Last Friday’s employment report provided further evidence of the strength in our labor markets. A couple of key figures were the low unemployment rate (4.1%) and a slight rise in wage growth.
The employment report is one of many indicators that are used to gauge the overall health of the economy. This report is important because when more people are employed, more money can go back into the economy. In the U.S. alone, approximately two-thirds of economic activity is generated by consumer spending. A tight labor market, highlighted by a low unemployment rate, generally bodes well for consumer spending. As we continue to move forward, it will be important to see if the low unemployment rate translates to wage growth as competition increases for workers. If this happens, this will provide further support to increased consumer spending.
The Federal Reserve also keeps a close watch on the labor market. Two of the items that the Fed is most focused on are labor market stability and inflation. The low unemployment rate has given them the confidence that raising short term interest rates won’t disrupt the stability of the market. The market expects several more rate increases as we move into 2018.
Overall, with lower unemployment and a stronger stock market, 2017 has been a good year for the consumer. We have yet to see if this will translate into higher sales numbers for retailers, but early indications are favorable. So as you drive around town and see the growth of new businesses and the rush of holiday shoppers, know that these are favorable signs of steady economic growth that hopefully support the local economy in the not-too-distant future.
As we approach the end of the year, please make sure to schedule a meeting with your SNB Wealth Management Advisor to review your investments and update your financial plan.