Yesterday’s sharp downturn in the Conference Board’s consumer confidence index for February has rattled investors, but the shift in sentiment isn’t surprising. With the labor market still weak, it’s only reasonable to expect that there’ll be a price to pay in Joe Sixpack’s outlook.
As the Conference Board’s Lynn Franco said in the accompanying press release, consumers “remain extremely pessimistic about their income prospects. This combination of earnings and job anxieties is likely to continue to curb spending.”
Of course, there’s no obvious damage unfolding in the government’s tally of retail sales, at least based on the latest reading for January. And, of course, last year’s fourth-quarter GDP report for the U.S. economy was quite favorable. But as we’ve been discussing for some time, it’s important to distinguish between the economic and financial activity of the past year or so vs. the outlook from here on out. The rebound in the economy and capital markets since last spring that was fueled by the gee-we-dodged-a-bullet syndrome has probably run its course. It’s been clear for many months that the economic system wasn’t going to collapse after all, at least not based on the acute financial-crisis factors that arrived in late-2008. There are debt/deflation issues to worry about going forward, a la Greece. But the previous worry is no longer a concern, as suggested by the sharp rise in formerly depressed prices in almost everything over the previous 12 months.
But that’s so 2009. Expecting the reflation trade to roll on indefinitely is naïve. There may be future gains in markets in the months ahead, but if so the source of the underlying bullishness will have to come from something other than comparing today vs. 2008. The hard business of generating economic growth has now moved to the forefront of challenge du jour. As the dip in consumer confidence suggests, this challenge will be far tougher than the reflation trend of the recent past suggests.
No matter how you slice it, it’s all about the labor market for the foreseeable future—and how the ongoing struggle to mint new jobs will impact spending. The next clue comes tomorrow, when the Labor Department updates the latest initial jobless claims. The burning question is whether our recent anxiety regarding this data series was warranted or not. Tomorrow will also bring news of the pace of new orders for durable goods last month. Since this corner of the economy is quite sensitive to cyclical fluctuations, the trend here is relevant for peering into the future.
Meantime, a worrisome sign for employment arrived in yesterday’s update on monthly mass layoffs, defined as 50 or more job cuts at a company. Unfortunately, there was a slight rise in mass layoff actions last month, the Labor Department reported: 1,761 in January on a seasonally adjusted basis, up from 1,726 in December. That’s a relatively mild 2% increase on a monthly basis. In addition, mass layoffs are still far below the nearly 3,000-a-month level from last March. But while the trend has been encouraging, at least up to now, this measure of the labor market’s health overall is still well above what would be considered healthy. But for the moment, there’s some concern that the trend of recovery may be faltering.
In short, the fact that the layoffs turned up last month on a seasonally adjusted basis for the first time since August is discouraging. As economist Richard Yamarone notes in The Trader’s Guide to Key Economic Indicators, “increases in the number of layoff announcements usually portend a softer payroll picture…”
One month a trend does not make, of course, and so we can’t yet declare that the labor market has hit a wall. And even if layoffs aren’t yet in full recovery mode, that setback can be offset with net gains in nonfarm payrolls. So far, however, there’s no sign of such an offset.
The hour is growing late for waiting. All eyes on the next round of job-market data.