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This Week's Economic News For Long-Term Investors Is Good

New monthly data on the economy for January was released this past week and it's all really good again. The U.S. economy created 227,000 new jobs in January and average hourly earnings rose. Employee compensation boomed in January, the cost of an employee actually declined, and a surge of new orders entered the pipeline at large companies.

According to the Bureau of Labor Statistics, 227,000 net new jobs were created in January, and the unemployment rate sank to 4.8%.

The jobs report Friday pushed stock prices higher, just a fraction off the recently reached all-time high.

As the unemployment rate approaches the low it reached at the peak of the expansion of 2007, new-job creation is likely to slow.

That's because the economy is approaching full employment, and there are fewer and fewer people looking for new jobs.

Average hourly earnings is accelerating, according to the latest data through the end of January.

At the peak of the last expansion in 2007, average hourly earnings grew at a 2.1% compound annual growth rate over the previous 12 months, versus the 2.5% growth rate through the end of January. Meanwhile, inflation declined.

This chart shows you the growth of average hourly earnings net of inflation. Real average hourly earnings went sideways for about five years after The Great Recession, and it has accelerated sharply over the past couple of years. What this means is that the talking heads on TV saying wages are stagnant and that Americans have not had a pay increase in years are using alternative facts, contradicting reality.

Last Monday, the U.S. Government reported that employee compensation grew 3.6% over the 12 months ended January 31. That's an important statistic because employee compensation is the most important of the five factors of personal income growth, which fuels consumer spending. Consumer spending is 70% of the gross domestic economy, and consumer spending is driven by growth in personal income.

At its peak in the last economic expansion, which was funded by debt, employee compensation grew by 3% in the 12 months ended March 2008, compared to the 3.6% growth in employee compensation in the 12 months through the end of January. That's fuel for continued acceleration of the economy, and this time, it's not based on debt.

Interestingly, while employee compensation was accelerating, the cost of an employee declined. The employment cost index ticked down, according to this quarterly data series, which is rarely mentioned in the financial and consumer press. Thus, while employee compensation rose sharply, it was offset by gains in productivity, which made it less expensive for companies to employ people.

The Institute of Supply Management, a private business group, tracks activity in the manufacturing sector separately from the non-manufacturing sector. On Monday, the ISM's survey of manufacturing activity showed a continued surge and, on Friday, ISM reported, non-manufacturing fell slightly but was still very strong.

Manufacturing accounts for about 10% of jobs in the U.S. and 14% of gross domestic product, while the non-manufacturing sector accounts for 90% of U.S. jobs and 86% of the economy.

Both of these indexes are used as early warning indicators, as they traditionally collapse months in advance a recession. Nothing like that is happening in these two charts.

The Standard & Poor's 500 index Friday advanced 16.57 points, or 0.7%, to close at 2,297.42. The index, which measures the value of America's largest publicly-held companies, is hovering lately near its all-time high.

Despite the bright outlook for the U.S. economy, and even as the global economy is exhibiting strength not seen in about a decade, investor sentiment could change anytime. There are many instances in U.S. post-War history in which a stock market correction or bear market occurred during a period of economic expansion.

No one can predict the future. Political, social, and other turmoil, or some new crisis could shake confidence and send some investors to the sidelines anytime, and a correction of 10% or perhaps 20% is possible at any time.

With fake news and alternative facts flourishing and major stock price indexes hitting new highs, we are an independent financial news source. These weekly emails are not intended as advice but provide prudent analysis about news affecting your wealth over the long run. Please feel free to share our timely weekly reports with your family and friends.


This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used by as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results. Investing in foreign securities carries political and currency risks.

Notes from BLS: Inflation data through December 2016. AHE includes 100% of non-farm private employees, and excludes benefits and employers' share of payroll taxes. 1 Compound annual growth rate March 2006 through December 2008 = 3.4%; CAGR December 2008 through January 2017 = 2.1%. 2 March 2006 average hourly earnings of $20.04 inflated by the personal consumption expenditures deflator (PCED).

Inflation data through December 2016. AHE includes 100% of non-farm private employees, and excludes benefits and employers' share of payroll taxes. 1 Average hourly earnings divided by the personal consumption expenditures deflator (PCED).

1 Includes wages, salaries, benefits and employer contributions for social security and Medicare.

The Current Employment Statistics (CES) program produces nonfarm employment series for all employees (AE), production and nonsupervisory employees (PE), and women employees (WE). For AE and PE, CES also produces average hourly earnings (AHE), average weekly hours (AWH), and, in manufacturing industries only, average weekly overtime hours (AWOH).

Concurrent with the release of January 2010 data, the CES program began publishing all employee hours and earnings as official BLS series. These series were developed to measure the AHE and AWH of all nonfarm private sector employees and the AWOH of all manufacturing employees. AE hours and earnings were first released as experimental series in April 2007, and included national level estimates at a total private sector level and limited industry detail.

Historically, the CES program has published average hours and earnings series for production employees in the goods-producing industries and for non-supervisory employees in the service-providing industries. These employees account for about 82 percent of total private nonfarm employment. The AE hours and earnings series are more comprehensive in coverage, covering 100 percent of all paid employees in the private sector, thereby providing improved information for analyzing economic trends and for constructing other major economic indicators, including nonfarm productivity and personal income.

AE average hours and earnings data are derived from reports of hours and payrolls for all employees. PE average hours and earnings data are derived from reports of production and related employees in manufacturing and mining and logging, construction employees in construction, and nonsupervisory employees in private service-providing industries.

1 Employment Cost Index. The BLS's ECI is built with fixed weights for individual industries and occupations.


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This article was written by a professional financial journalist for Neiman & Associates Financial Services, LLC and is not intended as legal or investment advice.

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