If there is a nasty recession coming, employers didn’t get the message in December.
The economy created a whopping 312,000 jobs last month, smashing expectations and providing President Donald Trump with a juicy and highly tweetable headline after a brutal month of crashing prices on the stock market, a government shutdown and mounting fears of global economic decline.
Story Continued Below
The jobs number, which also showed wages rising and sidelined workers surging back into the labor force, came like an unexpected blast of sunshine into an otherwise darkening economic picture.
It followed a report on manufacturing growth earlier in the week that showed the worst decline in a decade and a dire profit warning from Apple. And it came after the stock market turned in its worst year since the Great Recession and worst month since the Great Depression.
The report suggested — at least for a moment — that the U.S. economy is shrugging off a big pile of worries including the trade war with China, political dysfunction in Washington and higher interest rates imposed by the Federal Reserve.
All the doomsayers warning of an imminent U.S. recession looked foolish, at least for one day. The question that remains is whether the December number represented the last gasp of the current expansion with less rosy figures set to arrive in 2019 just as Trump ramps up his re-election efforts.
“This report should calm investor fears. The economy is not falling off a cliff, it’s just slowing down,” said Mark Zandi, chief economist at Moody’s Analytics. “But this number is backward looking and the stock market is forward looking. I think it’s the high-water mark for job growth for sure and job growth will slow as we move through 2019.”
Concerns about the future aside, there was good news throughout the December report. Unemployment ticked up to 3.9 percent from 3.7 percent, but that happened because more people who were out of the labor force began looking for jobs, driving labor force participation to 63.1 percent from 62.9 percent.
Wages rose at a 3.2 percent annual rate, the best yearly pace since 2008. Job gains for October and November were revised higher by a total of 58,000. Hours worked increased by 0.5 percent. There was not a blemish to be found.
Ian Shepherdson of Pantheon Macroeconomics led his note to clients after the report with one character — “!” — reflecting the shock of many economists about just how strong the December report was.
“We expected a strong payroll number after the distortions of recent months due to two hurricanes, the California fires and the very cold November survey week,” Shepherdson wrote. “But this is spectacular.”
Trump wasted little time spiking the ball.
“GREAT JOBS NUMBERS JUST ANNOUNCED,” he tweeted Friday morning, just after a rant about potential impeachment proceedings in the Democratic House. He also celebrated at an event in the Rose Garden on Friday afternoon, saying, “This really took people by surprise. This is a great number.”
Investors also cheered the number with the Dow surging in early trading Friday, ignoring worries that the sharp increase in jobs and wages could force the Fed back onto a path of multiple rate hikes this year. The Dow further rose after Fed Chair Jerome Powell later on Friday expressed flexibility on rates this year, and closed up nearly 750 points.
The report does complicate the Fed’s position. The central bank initially hoped to raise rates three times in 2019 to get back to a level it considers more normal after a decade of super-low rates following the financial crisis.
But it’s scaled back somewhat in recent weeks as markets fell and concerns rose that growth in the U.S. would fade this year as stimulus from the 2017 tax cut declines. Investors now expect the Fed to hold off on any additional increases this year. Trump has also repeatedly blasted Powell for raising the benchmark rate, arguing that the increases are stomping all over the economy. White House advisers are trying to organize a meeting between Trump and Powell.
Now the Fed will face an even more challenging picture. The global economy is clearly slowing somewhat, especially in China. Markets are a mess. But wages in the U.S. are rising fairly sharply, risking a spike in inflation that the central bank very much wants to avoid.
In an interview on Bloomberg Television on Friday, Larry Kudlow, Trump’s top economic adviser, dismissed fears of a U.S. slowdown. “We’re in a boom,” he said. He also cited talks between Chinese and U.S. negotiators set for next week as a good sign that some kind of deal could be reached between the world’s two largest economies before a self-imposed March 1 deadline, something that also boosted stocks on Friday.
He added that Trump may soon sit down with Powell — an unusual meeting given the Fed’s traditional independence from political pressures — to discuss their differing opinions.
“Both sides would like to have a meeting, and I personally think a meeting would be useful,” he said. “I prefer to talk rather than not to talk.”
At an event in Atlanta on Friday, Powell lauded the wage increase and said it “does not raise concerns about too high inflation” and he reiterated that there is “no preset path” for interest rates. “We will be patient as we watch to see how the economy evolves,” he said, adding that the central bank could shift the stance of policy “significantly if necessary” to address a changing economic outlook and rocky markets.
He also staked out his independence from Trump, saying he would not resign if Trump asked him to.
Concerns about how 2019 will play out remain. Economists still expect growth to slow considerably, closer to 2 percent for the year than 3 percent. There is no deal yet with China. The U.S. government remains partially closed. The Fed is still stuck in a tough position and markets are likely to remain volatile until many of these uncertainties get cleared up.
But for one day at least, happy days are here again.
“The December jobs report is a series of numbers that range from fantastic to fantastical,” American Action Forum’s Douglas Holtz-Eakin wrote in a note on Friday. “Equity markets may continue to stumble as they try to decipher the global policy landscape, but the underlying Main Street economy in the United States remains solid.”