The February jobs report was a mixed bag. Let’s get the bad news out of the way: the economy added only 20,000 positions, the smallest gain since September 2017. The number was much lower than last year’s average monthly amount of 223,000 and far below expectations for 190,000.
What explains the drop? There is no single answer, but here are some possible culprits: a statistical anomaly, exaggerated by seasonal oddities that are unlikely to persist; spooked employers, who sat on their hands as growth slowed in the beginning of the year amid the government shutdown; bad weather, which hurt construction (-31K during the month); and maybe just a weird one-off, much in the same way that the huge January number (+311K) may have also been an outlier. In fact, if we take the first two months of the year, job creation averaged about 165,000, an amount that would be consistent with a slowing economy in Q1.
However, there was also good news. Average hourly earnings increased by 3.4 percent from a year ago, the best annual gain in almost a decade (April 2009). Additionally, the headline unemployment rate returned to 3.8 percent, which is where it was before the government shutdown. Finally, the broad measure of unemployment (aka “U-6”, which includes unemployed; discouraged and marginally attached workers; and those who are working part-time, but seek full time) declined to 7.3 percent from 8.1 percent, its lowest point since December 2000. These numbers seem to indicate that the labor market may be slowing this year, but it is still relatively tight and healthy.
The longest bull market on record will celebrate its tenth anniversary. On March 9, 2009, the S&P 500 closed at 676.53, marking the nadir for the worst bear market in stocks since the Great Depression. At the time, few knew that it was the low point, in fact many prognosticators believed that there would be even more losses. Only in hindsight can we see that it was the beginning of the longest bull market (120 months), since World War II. During that period, the S&P 500 Index has quadrupled in value, rising more than 310 percent in price, that’s more than 15 percent a year! If you reinvested dividends, the total return has been 410 percent (17% annualized).
But according to research from LPL, “while this might be the longest bull market ever, it isn’t the strongest. Stock prices in the 1990s bull market increased by 417 percent at the peak, more than 100 percentage points above the current bull market.” However, this bull market has shown some grit, because it is “the only one ever with two 20 percent or more declines based on intraday prices.” Those occurred in October 2011 and again in December 2018, but the indexes came back by the close of trading, thereby able to narrowly avoid entering a bear market. And while we are talking about anniversaries, March 10, 2000 marks the high water mark (5048.62) of the tech boom, so Happy 19th Anniversary. The index did not close above that level again until April 23, 2015.
Last week, the word was that the U.S.-China trade war would soon wind down. As we continue to wait for a deal, the December trade deficit revealed that the dispute is not having the desired effect. Economist Joel Naroff described the numbers with China as “ugly.” The trade deficit with China widened by nearly 12 percent, as U.S. “imports from China in 2018 totaled nearly $540 billion but our exports were a paltry $120 billion.”
Even if the U.S. and China come to an agreement, was it worth it? As expected, there have already been winners (U.S. manufacturers and producers), and losers (farmers and exporters), but the bottom line numbers are not rosy, according to a recent study. While the federal government collected an estimated $39 billion from tariffs, consumers paid an extra $69 billion in added costs, due to price increases from both U.S. and foreign companies. The result: a loss of $6.4 billion for the U.S. economy.