About a month ago the financial markets were surprised by a January jobs report that was stronger than expected. The consensus was for a gain of 68,000 private-sector jobs, but the actual came in at a much higher 172,000. We noted the good news at the time but also said that we should “look for much slower headline numbers on payroll growth in the months ahead.”
And that’s exactly what we got in February, with private payrolls falling 86,000, well short of the consensus-expected gain of 60,000.
Some saw the February report as a sign of a potential recession, but we think that’s taking it much too far. The past two months should be looked at together, not separately. And together, including revisions, private payrolls rose 30,000 per month, in spite of a nurses’ strike and unusually bad weather in February that should reverse in March.
Normally, private-sector job growth of 30,000 per month could be considered weak. But with strict immigration enforcement and an aging native population, it is very close to the underlying trend. In other words, nothing we’ve seen on the labor market tells us the economy is booming or in recession. Look for very modest growth in jobs, on average, in the months ahead.
Don’t get us wrong; we are not “worry-free” when it comes to the US economy. The size of government expanded tremendously during COVID and has still not receded to pre-COVID levels. Meanwhile, inflation remains stubbornly above the Federal Reserve’s 2.0% target. Stocks are overvalued and the loss of wealth that would accompany a correction in stock prices or a bear market would be a headwind for economic growth in the short term.
