Net new jobs totaling 288,000 were added to the economy last month we learned this morning (July 3, 2014) from the Bureau of Labor Statistics. This is a good number, one of the stronger figures we have seen in the recovery. Unemployment is down to 6.1 percent, not too far from the common estimate of “full employment” of 5.5 percent. Here are the business implications:
- Look for continued economic expansion. Growth often builds on itself; see point number 2 below. Expansions do not die from old age, so ignore those who tell you how old this one is. But cautiously consider Point 6.
- Consumers will increase their spending moderately. The mood is middle-of-the-road. Consumers are not taking on new debt to fund their aspirations, but neither are they hunkering down. With increased jobs comes increased earnings, which will mostly be spent rather than saved.
- Businesses will increasingly think about expanding capacity. It hasn’t happened too much yet, aside from a few industries (energy, high tech) and a few niche businesses. Look for increased capital expenditures in 2015. (If you are dependent on other companies for manufactured parts, see my article, How Tight Is Manufacturing Capacity? (And What Should Companies Do About It?)
- Short-term interest rates will rise next year. We’ve thought this for a while, and today’s employment report reinforces the belief. (For an elaboration, see my Interest Rate Forecast 2014-2015.)
- Good workers with good skills will be increasingly hard to find. There will continue to be arguments about slack in the economy. The glass-half-empty crowd notes that the unemployment rate is pushed down by people too discouraged to even try to find work. They are right about that, but most of those folks lack the skills most in demand by employers today. Suggested strategy: read Quits Are Up: 7 Employee Retention Strategies Your Company Must Have.
- Recession is still a risk. The latest Wall Street Journal poll of economists finds an 11 percent risk of a recession beginning in the next 12 months. That’s down from a year ago, but too high to ignore. Do your contingency planning. For a guide, watch my video series Business Planning With A Risk Of Recession.
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