To varying degrees, commentators and economists are suggesting that the U.S. economy seems to be struggling to sustain a growth rate on the order of 2%, while most observers believe that growth on the order of 3% would be highly beneficial and, is also generally considered to be a reasonable target.
June unemployment has fallen to approximately 4.4% from the October 2009 peak of 10.0%. This kind of progress in unemployment should have brought about something better than the sluggish growth the country has actually experienced. Moreover, low levels of unemployment should have encouraged workers to seek wage increases. This has not happened. One explanation suggests that slow growth has caused workers to be wary of their job security and reluctant to pursue higher wages.
With unemployment at near record lows, one would expect a stronger labor market with more individuals moving into the workforce. Yet work force participation is currently at 62.8%, near record lows.
Investors should continue to monitor trends in employment. Bringing more people into the workforce should contribute to improving economic growth, stronger tax revenues, without raising rates, and, perhaps, higher wages.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®