A funny thing happened on the way to the mid-cycle slowdown. The slowdown wasn’t quite as slow as some in the Federal Reserve expected. That at least has been the new new thinking this week, courtesy of the surprisingly strong rise in GDP for the fourth quarter, as we discussed in our previous post.
Into the mix comes this morning’s employment report for December. Nonfarm payroll rose by 111,000 last month, the smallest rise since last May’s 103,000 increase. Is it time to rethink the economic growth story that seemed to bloom anew? No, at least not yet.
January’s rise in nonfarm jobs works out to a 0.08% rise over the previous month. That’s on the low end in recent history, but still within the band of growth posted in 2006. Last May and October witnessed identical rates of nonfarm job increases. Previously, such relative dips in growth inspired warning that job growth was about to stall in absolute terms, to be followed by recession. It didn’t happen then, and it may not happen now.
Indeed, as our chart below reminds, the labor market doesn’t move from growth to contraction overnight. The warning signals will build over months and quarters. Consider that the deterioration in the labor market in 2000-01 was fairly rapid, unfolding over about a year or so. But the type of blatant catalyst at the time–the bursting of the tech bubble–doesn’t offend in the here and now. Corporate profits are high, consumers are spending, the labor market’s growing, and investors are far more cautious. A recession may be coming, but now’s not the time to hold one’s proverbial breath.
