I'm not sure if it's because it fell off the radar during the government shutdown, or because the reports have all been so ho-hum lately, or because the White House keeps sucking up all of the news cycle oxygen, but the monthly jobs report passed almost without notice yesterday.
What did we learn? That the U.S. added 50,000 jobs in December, and the unemployment rate dropped a bit to 4.4%. We also learned we had a really bad October, with a loss of 173,000 jobs--much worse than first reported--and that November was similar to last month, with a moderate gain.
So if you focus on just the labor market (and we all do, because we all like to have jobs), it doesn't sound like that great of an economy. And you might be tempted to think, when you hear about stock prices soaring day after day--yes, we are thisclose to S&P 7000, and Dow 50,000--that it's an AI bubble and an unsustainable mirage.
But the real story is far more interesting. Because at the same time that we've been getting wobbly data on the labor market, we've been getting incredibly strong readings on GDP. We've gone from the first quarter's slight 0.6% contraction last year amid the inventory stockpiling ahead of tariffs, to 3.8% in the second quarter, and 4.3% in the third.
And on top of that, the Atlanta Fed's tracker for fourth quarter GDP hit 5.4% earlier this week! As for stock prices, actual corporate earnings surged 15% in the third quarter, which was way higher than expected, and they are expected to jump 7% in the fourth quarter as the reports start rolling in next week. Those are incredibly strong results.
So what is the real story here? I was pressing KPMG economist Diane Swonk about this on Friday, and as per usual, she gave a brilliant response. "It's a jobless boom," she responded. "We've had jobless recoveries, but we've never had a jobless boom, and this is something quite striking."
It's hard to know exactly why this happening, but many factors could be at play: surging productivity; companies downsizing post-Covid; tariff uncertainty which seems to have caused a hiring slowdown since last April; even the DOGE cuts could explain part of this puzzle.
All told, though, neither Swonk nor most others view this as any kind of recessionary slowdown. It's why she doesn't advocate for more Fed rate cuts right now, because the jobs slowdown could be more structural than cyclical, and cuts could risk inflaming inflation. To that point, the 10-year Treasury yield has been stubbornly high and has even slightly risen so far this year.
But as long as things don't really start heating up, the factors that have underpinned this roaring market rally are likely to remain in place. This is exactly the point Wells Fargo's Darrell Cronk made in that same discussion. The slight increase in the 10-year, he said, is probably not so much a function of an inflation or a debt problem, but rather the market building in a growth premium.
"We're setting up for high GDP growth and restrained inflation," he said, "and this is nirvana for the markets." And yes, eventually, hiring should pick back up strongly again, and inflation could become a concern, but he thinks we are still "years away" from that being a real development.
I'm not sure if that's solace for those urgently looking for work, but at least it's not a story of a bubble (yet), or a more worrisome economic slowdown.
See you on Monday!
Kelly
