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On Friday, September 2, 2016 the August employment report was released.  Nonfarm payrolls rose by 151,000, which was below the 180,000 new jobs predicted by economists.  The unemployment rate remained steady at 4.9%.  Generally, an employment rate below 5% indicates full employment for the economy.  A closer look at the employment report shows a few signs of weakness.  The average employee earnings remained basically flat for the month.  At the same time, many workers saw the number of hours that they worked cut.  So some workers are actually seeing a decline in their paycheck due to working fewer hours.  One explanation for this may be that employers are feeling a squeeze from rising costs and lower revenue.  Therefore, they are cutting expenses wherever they can and this includes lowering the number of hours worked.  Another area of concern is the underemployment index (called the U6 by the Bureau of Labor Statistics) which include part-time workers who want full-time jobs.  This index remained steady in August at 9.7%.

So what does all of this mean?  In general terms it means that the US Federal Reserve will be less likely to raise interest rates when they meet later this month.  According to Bloomberg, a well-respected financial firm, the odds of the US Federal Reserve increasing interest rates in September has dropped to 32%.  The chance that they will raise rates at their meeting in December is 60%.  So interest rates will most likely remain flat until the end of the year.

Even though interest rates are not expected to rise until the end of the year and the stock markets have risen significantly in 2016, I still think that the stock market has further room to rise this year.  Please read my earlier blogs for my rationale.