The positive view on the labor market

The U.S. Labor Department's recent jobs report showed a sharp hiring slowdown in May, yet wages and unemployment paint a picture of a labor market generally gaining strength. Was the recent apparent hiring slowdown just an aberration? The charts below suggest that optimists may have a reasonably good case when looking where labor trends may go.

As the first chart shows, wages have been rising in the private sector. A look at the monthly percentage change in wages over a rolling 12-month basis indicates that employees have generally been receiving wage increases for more than a year.

Tighter markets force higher pay

Percentage gains in wages

Data: U.S. Bureau of Labor Statistics

Jobless claims, meanwhile, are approaching levels typically associated with a considerably tight labor market. Weekly data can bounce around over time, but as plotted in the second chart, the four-week moving average shows that fewer people are making unemployment insurance claims. Overall, the trend conveys a sense of less and less slack in the job market. Pay particular attention to the 300,000 threshold: Jobless claims descended below it in late 2014 and have remained below it ever since — the longest such streak since the early 1970s.

Unemployment claims

Companies are concentrating on retaining workers

Data: U.S. Employment and Training Administration, via Federal Reserve Bank of St. Louis

Charts shown are for illustrative purposes only.

The views expressed represent the Manager's assessment of the market environment as of June 2016 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

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