Domestic labor markets took another encouraging step forward in January. Gains were widespread across employment sectors, and the unemployment rate shrank to 8.3%.
-Manning and Napier
March 1, 2012
With the end of first quarter 2012 fast approaching, it is becoming more evident that the U.S. economy has gained traction and organic growth is putting down roots. Domestic labor markets took another encouraging step forward in January. Nonfarm payrolls grew by a net 243,000 after backing out 14,000 government positions that were eliminated in the month. Gains were widespread across employment sectors, and the unemployment rate shrank to 8.3%. Relative to investors' expectations, these latest employment figures were good. That being said, the sustainability of improvements in the labor markets and the broader economy remain a concern. Last year, a series of exogenous shocks undermined investors’ confidence and threatened to derail the nascent domestic economic expansion. The U.S. is not immune to these types of shocks today, but the economy appears to be strengthening within the overall slow growth backdrop.
Rising tension in the Middle East is once again being reflected in higher global oil prices and higher domestic gasoline prices. In fact, gasoline prices in the U.S. recently touched their highest level ever for this time of year. As we discussed last year when commodity prices were rising, higher prices at the pump act like a tax on consumption. They also negatively influence consumer sentiment. While it may be true that the U.S. economy is on firmer footing today than at any point since the last recession, certain aspects of the economy remain far from robust and domestic growth is still susceptible to shocks. Consumers have certainly made progress toward paying down debts and repairing their balance sheets, yet they still lack the wherewithal and broad-based confidence to become a more meaningful economic growth contributor. To the extent that tensions in the Middle East remain elevated and continue to drive gasoline prices higher, wage gains created by improving labor market fundamentals may get eroded. Ultimately, higher gas prices could be an additional burden on the still fragile U.S. consumer – an example of a potential headwind facing the U.S. economy.
So far this year, progress in the domestic economy has largely exceeded investors' expectations, but January’s retail sales report was one exception. Retail sales grew a lower than anticipated 0.4% in January, and the monthly gain for December was revised down slightly. While still generally good, these retail sales figures serve as a subtle reminder that there are a number of forces present today that are restraining growth, and some may become more problematic than others in the short-run (i.e., gasoline prices). With this in mind, we continue to expect slow growth going forward.