By the time you read this, the big news is likely to be jobs. It hasn’t been a hot topic since the election, and most of what was said during that strange period wasn’t exactly true. The big job gains for February, along with a large round-up for January, make it impossible to ignore.
The economy has definitely turned around.
It’s all over but the shouting, of which there will be a lot. There is little doubt that Republicans will claim credit for a big turnaround in 2017, which will be utter crap. This has been a long time in the making and things have not been actually bad for a long time. Nevermind. Positive news will feed on itself and everyone will be happier.
But there is one final twist to the very good news – it’s really in the adjustment.
What we have is the ADP Employment Report, a decent enough predictor of the official jobs report that comes out on Friday. A gain of 298k was posted for February, along with an upward revision for January to 246k. That puts this year nearly 150k ahead of where we were in 2016, which is not a bad increase.
Has the economy finally turned towards genuine growth?
The short answer is no, the long answer is yes. What’s happening is primarily an artifact of good weather, which is to say that the seasonal adjustment is making things look better than they are. Typically, there is a mini-recession every January as seasonal retail workers are let go and construction grinds to a halt. The latter has not happened this year, with new buildings going up all over the country. That puts us ahead of where we’d normally be.
That doesn’t mean that the bump isn’t real, at least in a sense. More money going into worker’s pockets is always a good thing, with effects carried through the whole economy. It is good news no matter what in that sense.
What it will all come down to is who takes credit for the increase. There is a general belief among all politicians that we live in something like a socialist economy, where all improvements in jobs come from government policy. This is even true of Republicans, and it’s even true when no significant policy changes have taken place yet. Nevermind. The clock is re-started on January 1 and the credit or blame flows naturally to whoever is in charge.
That it’s all nonsense will get past otherwise serious reporters. It makes a good story.
Has the economy really turned around? Without any doubt, an increase in the Fed Funds Rate is highly justified and will signal a start in a long march towards something like normal interest rates. Bonds are falling, meaning that money is leaving safe investments. It will have to find another place to go. With higher rates there will be more appetite for risk, meaning that much of this money will be invested in things which actually help the economy.
Rising rates are likely to be a good thing, up to a point.
It also means that large-cap stocks are not going to be a good investment. It seems like forever since the last time the stock market was at or near a top and rates were rising, which is to say it’s been nearly 20 years. It’s not a good time for stocks. Smaller companies will remain the engine of this economy turning over into something new, meaning that the big returns will come away from the Dow Jones Industrial Average. That will become obvious in a few months, meaning even more money will seek risk.
How are we doing? Very well. More people are working and interest rates will rise. Both are good. It’s not at all about anyone getting credit no matter how hard they try. What matters is a more positive attitude, which is very likely to be the biggest net result.