Today’s entry: I respect your analysis and your accuracy when discussing economic matters. You recently mentioned you’re watching jobs as a sign of whether we should worry about the economy or not. Does the Friday jobs report, which looked outstanding, change your perspective at all?
Bottom Line: Yes, Friday’s jobs report does change my perspective slightly, but not the narrative. Friday’s record-setting jobs report reflecting the employment situation through the first two months of the year is the best I’ve ever analyzed. Not only are we seeing record employment, but we were also seeing an acceleration through February, with longer hours worked and record-high wages rising well above the rate of inflation. The way in which it alters my perspective is simply to know that we’ve entered the teeth of the coronavirus concerns with as much possible momentum as we could have hoped for. This allows for a little extra runway to deal with this storm over the short run. Otherwise, my narrative is the same. This is still about jobs. This remains my guidance.
The first thing to know about the financial markets, especially the stock market, is that uncertainty means selling. The coronavirus has without a doubt had a negative impact on the world economy. That necessarily means American multinational companies have and will continue to be negatively impacted by the disruption caused by the virus and that’s without it being a show stopper in the US. But there’s a big difference between short-term disruptions and bigger issues. Which is it? Because we don’t know, that's where the selling came into play. Stocks are now trading at fair value to their trailing-twelve-month earnings. That means the new expectation is zero growth. That means there’s upside if we grow and downside if we hit a recession. But that’s still about stocks and not the broader economy.
You should still watch for jobs. The number one, two and three economic indicators I’m looking for right now are jobs. The economy breaks down with 10% in government spending, 20% in business spending, and 70% in consumer spending.
You and I are 70% of the US economy. We have record employment with record wages and thanks to the Federal Reserve cutting interest rates, record-low borrowing costs. Minus the corona fears, this is an explosive economic story in the making. Any variable rate debt you have just became cheaper. Any borrowing you want to do will come at a lower cost. This includes record-low mortgage rates right now. Word to the wise for anyone looking to buy or refinance. But of course, that only matters if you have a job. And that’s what we need to watch. If we don’t have significant layoffs and the worst of the virus passes, we'll have a quick rebound. If the layoffs come, the recession likely would too. That’s what you should watch.
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