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August jobs data do not point to a recession




The U.S. economy is not entering a recession just because there were no new jobs created in August. The number reported today that is making headlines is the result of applying seasonal adjustment factors that are often wrong to data that are almost sure to be revised significantly a year or so from now. (Before seasonal adjustment, I note that 118K nonfarm payroll jobs actually were created in August, according to the establishment survey.) You can't jump to huge conclusions based on one or even two months' worth of jobs data—they are just too volatile and always subject to later revision.

Yes, jobs growth appears to have slowed down a bit in recent months. The six-month annualized growth rate of private jobs, according to the establishment survey, has slipped from 2.1% in April to 1.5% in August. But as the chart above shows, the bigger picture is that the economy has managed to create between 2.1 and 2.4 million private sector jobs since the end of 2009, depending on which survey you look at, and to my eye, the trend in both is still upwards. It's not a robust upward trend, since the economy is still struggling and fighting headwinds, but taking into account a range of key indicators (e.g., flat weekly claims, strong factor orders, strong commodity prices, rising C&I Loans, strong corporate profits, a steep yield curve, low swap spreads, rising capital goods orders, consumers' improved financial health, rising industrial production, rising retail sales—all documented in my posts of the past month), I believe that on balance the economy is still making forward progress and is not in danger of sinking into another recession.

I am not saying that the economy is in great shape; I'm just trying to make the point that things are not nearly as bad as the headlines would have you believe. From an investor's point of view, it is not enough to know that the economy is weak—you have to know whether the economy is weaker than the market believes it is. I think there is room for optimism because the market has an exceedingly bearish outlook for the economy (best found in the extremely low level of Treasury yields) that in the fullness of time is likely to be proven wrong.

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