The Federal Reserve predicted that a disappointing first quarter would be “transitory”. And by many accounts, they were correct.
After growing by an anemic 79,000 jobs (revised lower from 98,000) in March 2017, payrolls rebounded sharply in April 2017 by more than the expected 190,000.
In fact, according to the government, the U.S. added an impressive 211,000 jobs.
Leisure and hospitality accounted for 55,000 jobs. Food service jobs were up by 26,000. Health care and social assistance added 37,000 jobs. Financial industry jobs were up by 19,000. Mining added 9,000 jobs in April, as well.
Overall, the unemployment rate dropped to 4.4% from 4.5%, which was well below expectations of 4.6%. This is also the lowest the unemployment number since May 2007.
However, one of the most important indicators to the Federal Reserve was disappointing.
Average hourly earnings missed expectations for 2.7%, rising just 2.5%. But, if we look at the month over month data, an increase of 0.3% was in line with expectations.
There also was good news when it came to average weekly hours. That metric rose from 34.3 to 34.4, which pushed average hourly earnings up 2.6% -- the highest level since December 2016.
At the same time, a pricing report from the Bureau of Labor Statistics also shows inflation progressing at the Fed’s 2% target. The consumer price index was up 0.2% in April after falling 0.3% in March.
There are still signs of weakness. According to CBS News, despite some consumers scrambling “to cover their living costs”, a steady stream of retail closings, a weakened auto industry, and GDP growth of just 0.7%, there’s still a good chance of a June 2017 rate hike from the Fed.
Many economists believe most of those negatives are transitory, too.
“The report virtually cements the odds of a June rate hike. Something dramatic has to happen to persuade the Fed not to move,” said Sal Guatieri, senior economist at BMO Capital Markets, as quoted by Market Watch.
That article also quoted Carl Tannenbaum, chief economist at Northern Trust, who noted that “if there was any doubt that the Fed would move, it is now gone.”
Even the CME Fed Watch shows a 78.5% chance we’ll see a rate hike of 100 to 125 basis points. Some analysts believe the Fed may even be penciling in a total of two hikes this year due to our recent economic progress.
Whether the Fed raises interest rates or not, we will search for low-priced stocks that have the potential to make substantial profits for our Cheap Investor subscribers.