The bottom line: Despite some real improvements in the labor market, fewer people are working, jobs take longer to find and even when you have a job, raises are few and far between. The persistent weakness in the labor market has at least two investing implications.
1. The Fed knows all of this and, given its dual mandate, is likely to continue to err on the side of more rather than less stimulus. Last week may not be the last time the Fed surprises with a dovish decision.
2. I’m staying cautious on consumer stocks, particularly those that depend on a still struggling middle-class. This is partly because despite the Fed’s best efforts, some of these labor market problems do not lend themselves to monetary solutions. At best, the Fed can mitigate the impact, although at the cost of an ever expanding balance sheet. This means that US income growth is likely to remain muted, and US consumption along with it.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist.