April jobs report decent, but economic growth lags

Consumer confidence chart via Bloomberg.com

 

Last Friday's jobs report didn't reveal anything too terrible. An additional 223,000 jobs were added to U.S. payrolls and the national unemployment rate dropped to 5.4 percent, but it wasn't good enough to suggest any big changes are coming soon.

Part of the problem is that average wage growth barely budged, rising 0.1 percent in April. Despite the steadily falling unemployment rates, salaries have remained fairly flat - this is the opposite of the inflationary trends Federal Reserve officials want to see before making any policy changes.

The huge drop in oil prices in late 2014 and early 2015 has taken a hit on one of the fastest-growing U.S. industries in recent years. In April alone, domestic oil and gas well drilling dropped 14.5 percent, helping pull down overall U.S. industrial output 0.3 percent.

Even though gas prices are relatively low, consumer confidence is also lagging. A University of Michigan report shows consumer confidence dropped in the past month to its lowest point since last October (see chart above).

With all of these economic trends showing lackluster growth, and therefore pushing back a move by the Fed to raise interest rates, the S&P 500 index soared Friday to another all-time high. Low interest rates promote a positive growth environment for homeowners, car owners and business owners to build savings, invest more money into the market or pump back into the retail economy.

Is the oil market out of touch?

 

Prices are rising, but can demand sustain it?

Since last year's drastic dropoff in oil prices, when the cost of a barrel of crude oil sank from $114 to under $50 per barrel in the span of a few months, costs have begun moving up again.

After reaching a low of $46 a barrel in January, by Wednesday this week the going rate climbed to as high as $69. Since January, American oil production has dropped to stay in line with more tempered worldwide demand.

But are the recent oil price gains belying the continued weak demand, in reality?

"In the short-term, futures prices do not necessarily reflect accurately the physical market," Italian oil executive Dario Scaffardi told Reuters.

Data from OPEC and the International Energy Agency show that more oil is still being produced per day than is being consumed. If oil prices continue to gain too much, it could set the market up again for another crash similar to last summer.

Wall Street suffers jitters

Meanwhile, Wall Street investors are jittery following a weak first quarter of 2015 for GDP growth. The Standard & Poor index closed Wednesday at its lowest point in the past month.

U.S. Gross Domestic Product growth in part has been stifled by a stronger U.S. dollar, ironically, because higher prices abroad make American products less appealing, and thus hurts trade profit margins.

April's job report figures will be released on Friday, which will either reaffirm weaker growth in 2015 or point to a shift in the other direction. As long as economic growth flounders or shows mixed results at best, it's looking more and more likely that the Federal Reserve will push an interest rate hike back into the future.