As we wait for the jobs report on Friday, there is a lot of worry. Signs of a slowing economy are pointing toward a recession this year. Consumer spending dropped two straight months at the end of last year, and business confidence is down to recessionary territory. The Fed is still looking to substantially weaken the labor market, in search of lower inflation. All of the signs are that the jobs market will weaken significantly.
But I wrote pretty much the same thing, for the same reasons, last month—and job growth kept going. Actual job growth came in at 223,000, beating already healthy expectations of 200,000. This is, per history, a level of job creation more often seen in booms than in recessions. So, despite all of the very real risks, whether the job market actually weakened is open to question.
Downside Commentators
Some weakening is expected. The consensus is for 175,000 new jobs, which by historical standards would be pretty good and would be a reasonable slowdown from last month. But, with widely reported layoffs from technology firms, there seems to be a sense that a much wider round of layoffs is getting underway, raising the risks of an even bigger drop. That notion is also supported by the Challenger job cut announcements, which have spiked in the past couple of months. And when you add in the ADP jobs report today, which came in at 106,000—well below the expected 180,000 and even more below last month’s 235,000—there looks to be the potential for an even weaker number. This is what is guiding many of the downside commentators.
Focus on the Positives
I am not one of them. While the potential for a miss is real, there are also positive data points. Available job openings rose by more than half a million last month, from 10.46 million to 11.01 million. There are a lot of jobs available. Initial jobless claims, a proxy for layoffs, have stayed steady since September and actually dropped in January to historically incredibly low levels. Even as the total number of jobs added per month has declined over the past several months, the number of private jobs created has stayed fairly stable since last August, suggesting much of the weakness reflects quirks in governmental hiring, rather than a weaker private demand for labor.
I am therefore betting on continued private hiring, driven by those 11 million open jobs. That should get us to around 200,000. If you take a closer look at the data, what has been declining most is the excess job creation above the jobless claims level. If that holds, we should see a new jobs number of around 200,000, which is very much in line with the stable private job creation number. There will be some noise here of course, but it is likely to be reasonably symmetric. So, we can look for a new jobs number overall of between 175,000 and 225,000.
What Will It Mean for the Economy?
What will that mean? If I am wrong on the downside, that will be good for confidence and spending but likely to spook the Fed. If I am wrong on the upside, we need to understand where the shortfall was. If private employment is finally starting to roll over or if companies are not replacing workers let go, that is a change worth noting, and we will discuss it then. But for the moment, signs are that, overall, the labor market remains healthy.
The real question for investors will be whether the economy is turning down in a significant way or whether it is still in a better spot with continued moderate growth. The data suggests the latter.
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