Yellowstone Partners Reacts to July Employment Report

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July: A solid month for the labor market.

U.S. payrolls raise by 209,000 in July as jobless rates fall to 4.3%

The July employment report released on Friday morning showed solid gains in both payroll employment and hourly wages. The unemployment rate reached a 16 year low of 4.3% while the 209,000 gain in new jobs was above the 180,000 expected by economists. In addition, hourly earnings rose by 0.3% and are ahead by 2.5% year over year. The reaction in the market to the employment report was muted on Friday morning with stocks up marginally in early trading while U.S. Treasury yields were slightly higher across the board. Sterling Russell, Director of Fixed Income at Yellowstone Partners believes that “the July jobs report reinforces the steady as you go nature of this economy.”

While the July job numbers were welcomed by investors, they are unlikely to contribute to an accelerated pace of economic growth and/or inflation. In other words, the data is supportive of the markets at current levels but will do little to motivate investors to take a more aggressive stance in either equities or bonds. Most economists consider the labor market to be a coincident or even a lagging indicator of future activity. This is based on the fact that most new hires are brought on to support past increases in demand. With some indicators of future demand flashing caution signals – auto sales in particular – it is not surprising that the market reaction to the data is muted.

With respect to Federal Reserve policy, we believe that today’s report is supportive of another rate increase before year end. However, other indicators, inflation in particular, may be more important to compelling another rate increase by central bank policy makers in 2017. With the inflation data stuck below the Feds 2% target policy makers are likely to take the cautious approach to another rate increase at the next FOMC meeting on September 20th. “Slower growth in inflation adjusted wages has been a constraint on consumer spend¬ing. Tighter job market conditions usually lead to higher wage growth; however, wage inflation has not responded to the low level of unemployment like we have seen in the past”, according to Mark Anderson, Yellowstone Partners’ Chief Investment Officer. In summary, we view Friday’s report as supportive of the markets but it is unlikely to shift policymaker’s stance toward another rate increase in the near future.

Important Disclosures:
Yellowstone Partners is a SEC-Registered Investment Adviser.
The views expressed are those of the portfolio managers as of August 4, 2017 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice.

About Yellowstone Partners, LLC
Yellowstone Partners, LLC is a SEC Registered Investment Advisor established in 2005, whose predecessor company was founded in 1972. Yellowstone Partners is a national wealth management and financial planning firm with approximately $650 million in assets under management. Yellowstone Partners has offices in Salt Lake City, UT, Idaho Falls, ID, Tacoma, WA, Tucson, AZ, Canton, OH, St. George, UT, Denver, CO, and New York, NY and clients throughout the United States. More information is available at http://www.yellowstonepartners.com.

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Peter Watkins
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