Strong Jobs Report, Manufacturing Surprises In January

 

We’ll touch on several bases today as there is plenty of news to report, including additional good news on the economy over the last couple of weeks. Let’s begin with last Friday’s stronger than expected jobs report for January.

US hiring strengthened in January as more Americans hopped into the labor market, helping rev-up the economy at the start of the year. The Labor Department reported that employers added 225,000 net new jobs last month, well above the pre-report consensus of 156,000 new hires. Over the last three months, new jobs have averaged 211,000 compared with a monthly average of 175,000 for all of last year.

 

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The headline unemployment rate ticked up to 3.6% from 3.5% in December, but that was due to more people actively looking for work, which is a good thing. The labor force participation rate increased 0.2% to 63.4%, matching its highest level since June 2013. Wages climbed 3.1% from a year earlier, a touch stronger than December’s rise of 3%, to $28.44/hour on average.

Companies looking to hire are drawing from a larger pool of job seekers to fill roles. In January, the share of Americans aged 25 to 54 working or looking for work ticked up to 83.1% from 82.9% in December, the highest rate since 2008. That’s great news!

Solid hiring has been a hallmark of the economic recovery of the past decade. US employers have added to payrolls for 112 straight months, the longest streak of job gains on record (over 9 years). In sum, the January jobs report was clearly stronger than expected and another indicator that the US economic recovery is in fine shape.

US Factories Expanded in January, First Time in Five Months

In what was even better news in my opinion, US factories expanded unexpectedly last month, snapping a five-month losing streak. The Institute for Supply Management (ISM), an association of purchasing managers, reported last week that its manufacturing barometer, the Purchasing Managers Index (PMI), rose to 50.9 in January, up 3.1% from 47.8 in December. Any reading above 50 signals economic expansion, whereas anything below 50 indicates contraction.

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The ISM Index previously showed US manufacturing contracting from August through December, partly because President Trump’s trade war with China had raised costs and uncertainty. Economists had expected another bad month in January.

But new orders, production and export orders all grew last month. While factory hiring dropped for the sixth straight month, it did so at a slower pace than in December. Factories, the ISM said, were struggling to find workers at a time when the unemployment rate is at a 50-year low of 3.5%.

 

The bottom line is that US manufacturers suffered a slowdown last year after the US trade war with China and a global economic slowdown reduced exports and spurred companies to cut spending and investment. Yet in January there were solid signs of a rebound as new orders jumped 4.4%. I continue to believe we are seeing a turnaround in manufacturing – unless…

 

Coronavirus Implications For US & Global Economy??

I put a double question mark at the end of the subtitle above because the truth is, nobody knows at this point how bad the coronavirus may get. What we do know at this point is that China has reported over 60,000 infected persons with over 1,000 deaths so far – at least that’s what Chinese authorities admitted to earlier this week. The virus has spread to dozens of other countries including the US where at least 13 people have been diagnosed.

Thus far, US stock markets have largely ignored the coronavirus, setting new all-time records twice this week. However, I do not believe US stocks have priced in the economic fallout from the virus. Why? Most experts agree we have not yet seen nearly the brunt of negative consequences that will be created by the loss of Chinese supply chains. When this happens, we could see prices soar for goods made in China and others that require Chinese-made parts, etc.

This is just one more reason why I recommend that investors seriously consider diversifying beyond traditional buy-and-hold strategies, including index funds, while the equity markets are still strong. That is why I devoted this week’s Forecasts & Trends E-Letter to a discussion of YCG Investments and why I believe they are a better alternative to index funds and buy-and-hold strategies, which are sure to get hammered in the next big equity correction or bear market.

 

Be sure to REGISTER to attend our live webinar with YCG Investments on February 19 at 4:00 PM Eastern. If you are a buy-and-hold investor, you don’t want to miss this one!

 

Gallup: Record High 90% of Americans Happy With Personal Life

The latest round of Gallup polls this week revealed that nine in 10 Americans are satisfied with their personal life, a new record high. About two-thirds said they are “very satisfied.” In another Gallup poll, Americans said their personal finances have been improving. Nearly six in 10 Americans said they are better off financially than a year ago, also a new record high.

 

I’ll leave it there for today. HAPPY VALENTINE’S DAY EVERYONE!!

 





Posted 02-20-2020 1:23 AM by Gary D. Halbert