Today features an event that’s usually considered the most important economic report of the month. But it might be distorted by the strong economy.
That might sound crazy, but it’s exactly what happened yesterday when ADP’s private-sector payroll tally missed estimates by 13,000. The problem wasn’t a lack of jobs, but a lack of workers. Number crunchers preparing the report added that the shortage of potential employees “is set to get much worse … across all industries and company sizes.”
Fast forward to 8:30 a.m. ET today, when the Labor Department publishes its count of all jobs across the economy. Forecasters on average expect 190,000 jobs to be added. But given the trouble most companies have had filling empty slots, even a weak number might get disregarded.
We seem to be reaching a point when individual numbers have lost meaning, so it’s better just to understand the bigger picture. In this post we wanted to highlight some of the broader conditions that have allowed employment to get so strong. That may help readers down the road recognize when the cycle starts to weaken.
The single most important story seems to on the factory floor. “Businesses continue to experience highly elevated levels of activity as a result of pro-growth policies like tax reform,” the National Association of Manufacturers declared in late June. The organization added that its quarterly sentiment index rose to a record high on optimism about sales, investment and hiring.
Market Insights has followed this trend all year. We noticed the spike in factory jobs back in January, and it’s continued ever since. Based on the last data for May, manufacturing payrolls have risen for 10 straight months. If not for a small drop of 4,000 jobs last July, that streak would be 18 months — the longest continuous expansion since 1998.
Factory jobs help the economy because they tend to support growth in other areas — especially in transportation and construction. That’s one of the most dramatic things differentiating the current economic cycle from last decade’s boom, when manufacturing jobs were steadily lost.
Speaking of transportation, rail traffic continues to hit new multi-year highs. While ignored by most of the financial press, this key weekly indicator from the Association of American Railroads has been flashing green since late 2017.
Another difference between this decade and the early 2000s is the relative lack of debt. Numbers from the Federal Reserve’s Flow of Funds report shows annual debt growing 8-9 percent steadily between 2003 and 2007, led by mortgages. Do you know that this decade it’s never risen by more than 4.6 percent?
The mild debt growth comes despite banks trying to lend. The Fed’s senior loan officer survey shows institutions lowering standards as they compete for borrowers. A recent study by Credit Suisse even showed banks are sending out 41 percent more junk mail in hope of drumming up business.
This really jumps off the page because debt growth usually provides extra juice to economic cycles. Sometimes it’s even derided as a “sugar-high.” But this time, the U.S. is still accelerating without any signs of a credit bubble.
In conclusion, many Americans have waited a long time for the economy to be this good. As highlighted above, several factors help explain the improvement. But those same conditions might also diminish the splash of today’s job report. At least for the time being, we might be entering a new era when each and every number loses importance and investors truly benefit from a longer-term view.
