However, the slowdown is over. Ill effects of the unseasonably tough winter have faded. So, too, will the fallout from the West Coast port strike and the nosedive of oil prices on the energy industry. The economic sting from the stronger value of the U.S. dollar and soft global economy will take longer to shake off, but this also should soon be less painful. (Deep dive: U.S. Oil Inventories.)
Despite the slowdown, the job market continues to tighten. Unemployment and underemployment are substantial, with slack at just over 1% of the labor force. But even at the recently slower pace of job growth this slack will be absorbed by fall in 2016. And job growth is expected to pick up in coming months. (Deep dive: U.S. Employment Situation.)
The tightening job market is finally prompting stronger gains in labor compensation. There had been an increasingly perplexing gap between the apparent strength of the job market and pedestrian wage growth. That gap mostly closed in the first quarter with the strong gain in compensation as measured by the comprehensive employment cost index.
Wage gains should pick up further as the economy approaches full employment.
Stronger wage growth and recently firmer oil prices have diluted worries about disinflation and even outright deflation. Quickly rising rents, given low and falling rental vacancy rates, are also putting upward pressure on inflation. Core inflation is still uncomfortably low, but it is stable and expected to pick up later this year.