Some Green Shoots of Spring Appear


Spring came late this year in the Northeast as a late March blizzard threw off the normal seasonal rhythms. But now the trees are green, the flowers are blooming, and allergy sufferers—of whom there are several at home—are downright miserable.

The economy, too, has gone through a long winter. But with Friday’s jobs report, well, spring may have sprung.

Employers added 211,000 new jobs in April, well above consensus estimates of 185,000 and more than 2 ½ times March’s revised figures of 79,000 new jobs added. It marks the third out of the first four months this year in which job growth topped 200,000. Average job growth over the past three months was 174,000, pretty much in line with last year.

Even more impressive, the unemployment rate fell to 4.4%, the lowest it’s been in a decade, since before the financial crisis. That was as low as it got in the last economic cycle, so if this isn’t full employment, what is?

I can see at least two possible outcomes here.

One is that the winter economic slump is over. If that’s true, we’ll see a rebound in consumer spending, especially auto sales, which have sagged for several months. Will the drop in oil and gasoline prices spur car buying before the summer driving season begins on Memorial Day weekend? Let’s also watch home purchases and building permits to see if their recent strength continues.

We should also see wage growth pick up from the current annual rate of 2.5%. That and another strong jobs report next month would, I believe, clinch the case for a quarter-point rise in the federal funds rate at the Federal Open Market Committee’s next meeting in mid-June. I think it would also push stocks higher.

The other alternative is that April’s jobs report was a flash in the pan and we revert back to March’s terrible numbers. Auto sales remain weak, the housing market softens, and all the optimism we’ve seen in the “soft” data (consumer sentiment and confidence numbers) doesn’t translate into the “hard” data of consumer spending, wage growth, and GDP.

In that case, I’d expect stocks to sell off and bonds to rise—especially if the health care bill passed Thursday by the House of Representatives stalls badly in the Senate, delaying even further the tax reform and big business tax cuts investors have counted on since Donald Trump’s election on November 8th.

I think a resumption of growth is more likely. But as I’ve written before, when unemployment hits its lows for the cycle—which seems to be happening now—we’re much, much closer to the end of the economic recovery and bull market than to the beginning.