Pace of growth of U.S. economy picks up in first quarter

Gross domestic product (GDP) estimates for the April-June period, are above the 4% annualized rate and are double the 2.0% pace logged in the first quarter.

During the second quarter of 2018-2019, the U.S. economy has continued to maintain its brisk pace of hiring. In June, wage of workers have continued to increase reinforcing the expectations of a robust growth in the economy. This could potentially allow the Federal Reserve to continue raising interest rates.

The U.S. economy needs to create around 100,000 jobs per month to keep up with the pace of this growth in the working-age group demography.

The U.S. Labor Department is set to publish its employment report on Friday at 0830 EDT (1230 GMT).

“June’s employment report is likely to show some further tightening of the labor market,” said Harm Bandholz, chief U.S. economist at UniCredit Research. “That together with rising inflation should keep the Fed on track to raise interest rates two more times this year.”

As per the minutes of the Fed’s June 12-13 policy meeting, published on Thursday, its assessment of the U.S. labor market was upbeat.

The Federal Reserve, which raised interest rates last month, for the second time this year, has projected two more rate hikes by Dec, 31, 2018.

Growth in wages

As of June, the unemployment rate is seen holding at 3.8%, its 18-year low. So far, it has fallen by three-tenths of a percentage point and the Fed’s expect it to touch 3.6% by the end of this year.

However, job gains have been below expected levels with industries across the economy complaining of shortage of workers. From manufacturing to the services industries, companies across industries and sectors have reported that they are finding it difficult to find skilled workers including electricians, carpenters and truck drivers

“Clearly, firms are looking for workers and have become somewhat desperate, but if they cannot find them, then job growth could be lower than the consensus,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “A disappointing number would not be a sign of weakness, other than in labor supply.”

As of April 2018, there were 6.7 million unfilled jobs, a record in itself. In their bid to attract workers, companies have steadily increased wages. As of June, average hourly earnings have risen by 0.3% with a similar increase seen in May as well.

This could potentially boost the annual increase in average hourly earnings to 2.9%, the largest gain since June 2009. A strong growth in wages will confirm that inflationary pressures are building.

For the first time in 6 years, the Fed’s preferred inflation measure hit the central bank’s 2% target in May; it is expected to maintain its course and remain high, partly due to a tightening in the job market.

This employment report adds to other data including trade and consumer spending which in their totality suggests that this year’s second quarter is seeing a sharp acceleration in economic growth.

Gross domestic product (GDP) estimates for the April-June period, are above the 4% annualized rate and are double the 2.0% pace logged in the first quarter.

However this growth rate could be at risk from the Administration’s “America First” trade policy, which poses significant threat to its labor market and its economy as a whole.

Economists expect the tit-for-tat trade wars to hit U.S. manufacturing which could potentially see a slowdown in capital expenditures and hirings.

“It’s hard to fathom how the robust manufacturing conditions will be sustained,” said Joe Brusuelas, chief economist at RSM in New York.

On top of the 18,000 manufacturing jobs that have been created in May, June is expected to have added another 15,000 to payrolls. Similarly, construction payrolls are likely to have risen by 25,000 in May.

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