The stock market may be tanking but the economy roars ahead with 312K jobs last month
Donald Trump may be a little obsessed with the performance of the stock market, which lost 6% of its value last year, but he needn't worry about the overall American economy.
The Bureau of Labor Statistics reported today that businesses created 312,000 jobs in December, far exceeding expectations on the street. The unemployment rate rose to 3.9%, reflecting a big increase in the number of people seeking work. The labor participation rate also rose as the economy continues to shake off the effects of eight years in the doldrums.
What's more, wage gains for all of 2018 were a robust 3.2%, up from 2.7% in 2017.
Maybe this will stop the slide on Wall Street, triggered by several rate increases by the Fed, the effect of the trade war with China, and a slowing global economy.
Federal Reserve Chairman Jerome Powell is scheduled to speak later Friday morning in Atlanta. While the report is in line with the Fed's view of a healthy job market and officials last month penciled in two interest-rate hikes for 2019, the central bank may need more evidence of strength before moving forward with the next increase following four in 2018.
The data probably brought a "huge sigh of relief on Constitution Avenue," the site of the Fed's headquarters in Washington, said Torsten Slok, chief international economist at Deutsche Bank AG. The figures take pressure off Powell to downplay the dot-plot rate forecasts of policy makers, and the chairman can "easily justify" additional hikes, Slok said on Bloomberg Television.
Before Friday's report, investors had begun betting that policy makers will instead end up cutting borrowing costs.
Now, "this should give the Fed some comfort that their assessment of the economy is correct and that they're on track for further rate increases this year," said Michael Gapen, chief U.S. economist at Barclays Plc.
The figures brought the 2018 payrolls gain to 2.64 million, up from 2.19 million in 2017. Economists have expected the pace of gains to ease this year, consistent with their forecasts that gross domestic product growth will moderate amid the trade war and a fading boost from the Trump administration's tax cuts. Even so, President Donald Trump is likely to cheer the results as evidence that his policies are still boosting the economy, rather than dragging it down.
No one really knows the mind of Fed chairman Powell, but his speech this afternoon will be closely monitored. Investors are looking for predictability and stability, and this month's positive jobs numbers should feed that perception.
Analysts are predicting more modest GDP growth in the 4th quarter – Kiplinger predicts a rate of 2.8%. But given the jobs numbers, solid corporate profits, and high confidence among businesses for continued growth, that number may fall short when the first estimates are released at the end of this month.