Money Advice

Solid job growth, but tariffs still in the spotlight

Posted by The Simply Money Advisors Team on Aug 6, 2018 4:48:00 PM

The robust job market continues be an important force in the U.S. economy.

The July jobs report showed the economy added 157,000 jobs last month, and while that fell slightly short of economists' projections, revisions to the prior months of 59,000 additional jobs more than made up for the shortfall.

Digging deeper into the report showed that job gains were widespread across industries with notable gains from construction, restaurants, and part-time workers. Contrary to popular belief, an increase of part-time workers is a good thing because these workers can be hired into full-time positions. Further, the economy usually keeps growing when employers hire part-time workers.

The report also showed the unemployment rate ticked lower to 3.9% from 4.0% even though more people were looking for jobs last month.

A separate report last week indicated the U.S. consumer is in better shape than previously thought. Thanks to new IRS data, the savings rate is actually much higher: 6.8%. Prior years were also revised higher, including an increase for 2017 to 6.7% from 3.4%.

This matters because if people have more money, they can spend more, and consumer spending makes up about 70% of the U.S. economy. It also means that should the economy fall on hard times, people will be able to better weather the storm.

As we expected at Simply Money Advisors, the Federal Reserve, our nation’s central bank, did not raise short-term interest rates at its meeting last week, but in its statement upgraded its view on the economy to "strong" versus its previous description of "solid." This economic outlook along with the healthy jobs report is why it's widely expected the Federal Reserve will hike interest rates when it next meets in September.

We are about 80% of the way through earnings season, and the results have been very good. About 85% of large corporations have reported better-than-expected earnings, and, on average, earnings are 25% higher than the second quarter last year. During last week's earnings reports, the iconic American company Apple hit a milestone, becoming the first company to reach a market capitalization of $1 trillion.

The Simply Money Point

With all that said, trade will be in the spotlight this week as the Trump administration is considering a higher tariff rate of 25% on $200 billion of Chinese goods due to China's alleged theft of U.S. intellectual property. China said they would retaliate with tariffs on $60 billion of U.S. goods. As an investor, be prepared for more potential market turbulence this might bring.

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Topics: Economics

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