It is, I guess, a sign of the times in which we live that something empirical like the jobs report is looked at through the lens of politics. Observing that jobs growth is good does not make you a Trump supporter, nor does stating the fact that monthly gains are generally lower than under the Obama administration make you a hater.
Both of those things are explainable without reference to politics: the slow pace of recovery that is typical following credit crises means that we are still gaining jobs, but as we near maximum employment the rate of gains inevitably slows. Politicizing data and making investment decisions based on your biases is a fool’s game.
However, that doesn’t mean that you shouldn’t be reading things into published data, and yesterday’s jobs report did contain some interesting reading.
The overall picture, as defined by the headline Non-Farm Payroll and Unemployment numbers remains positive. Sure the 148,000 new jobs created in December fell well short of the 190,000 expected, buts what matters more is the rolling three-month average, which held above 200,000. That is impressive at any time, but after years of similar or better growth it is particularly impressive.
The unemployment rate held steady at 4.1% for the third consecutive month, adding further support to the contention that that level represents effective full employment in the modern jobs market, and the blue collar construction and manufacturing sectors were among the biggest gainers. There may be some mobility and training issues that lead to pockets of unemployment, but it is simply not the problem it was a few years ago.
Where this report gets interesting and some useful lessons can be learned is when you dig deeper into the numbers. The breakdown of employment by industry is particularly revealing, and it paints a dismal picture for retail. In a month when you would expect strong seasonal hiring, the industry shed over 20,000 jobs, bringing the total net losses for the year to 67,000. I try to be a glass half full kind of guy, so rather than seeing disaster in this for most retailers, I see it yet another reason to buy Amazon (AMZN).
Their dominance of the retail sector may be scary to many, but once again, investors should be looking at the data rather than their feelings, and that says only one thing. Amazon is still increasing their market share at a rapid rate, even though they are now doing so from a huge base. It is a measure of their dominance that the best hope of many of their competitors is to be bought by them, and in a situation like that, conventional valuation metrics matter not at all. It is all about Amazon’s seemingly inexorable march to world dominance, and the evidence shows that that march continues.
On many occasions last year, I wrote that what traders and investors should be paying attention to in the jobs report is not jobs themselves, but wages. The remarkable thing about the sustained job growth over the last few years is that it has been sustained without putting any significant upward pressure on wages. This report contained some signs that that is coming to an end.
Overall wage increases remained relatively subdued at a 2.5% annual rate, but as Ian Shepherdson from Pantheon Macroeconomics points out in this NY Times piece, the wage increase in cities where the unemployment rate is below 3.5% was a much more impressive 4%.
That suggests that increased wage pressure is coming, but if current trends continue it may not immediately result in inflation. A large number of companies, for example, have acknowledged that they will be much better off after a big tax cut, but are passing on a portion of the benefits to staff in the form of a one-off bonus rather than actual wage increases. That follows a pattern where employers offer one-time payments or improved benefits to lure and keep workers, which, from the corporate perspective, have the advantage of being easy to stop or rescind.
In other words, traders and investors should stay in stocks, as the majority of the benefits of tax reform and growth will stay with corporations for some time to come.
So, while others are using the jobs report to score political points, market watchers should be looking at it differently. Looking back at the last few years, what is clear is that the recovery is robust, and ongoing. As I have said before, investors should not regard politicians as being any part of that, good or bad. What this month’s jobs report shows is that while some sectors are doing better than others, the American economy overall remains strong and resilient, and that is good news for stockholders.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.