Recession worries dispelled by Herculean jobs report

January 5, 2019

Any fears of an impending recession were likely dispelled Friday after the Labor Department reported the biggest monthly job gains in more than two years and wages climbed the fastest in nearly a decade, showing that the near-record economic expansion still has plenty of momentum.

U.S. employers added a mammoth 312,000 jobs in December, shattering expectations tamped down by a turbulent stock market that has had analysts raising the “R” word and investors running for safety. Wages, long seen as the missing piece of the expansion, increased 3.2 percent over the year, the biggest gain since 2009. The Labor Department also reported that nation addded nearly 60,000 more jobs in October and November that initially estimated.

“The recession worries were vastly overblown,” said Mark Zandi, chief economist Moody’s Analytics, the economic research arm of the bond rating agency. “This does a nice job of washing away those fears.”

That appeared to be the case on Wall Street, where concerns about a slowing economy and rising interest rates has led to broad sell-offs, most recently on Thursday. On Friday, the Dow Jones Industrial Average surged by 747 points, or more than 3 percent, while the technology-heavy Nasdaq Composite jumped by more than 4 percent.

Oil prices, which also have taken a beating on worries about economic growth, rose Friday. Crude gained about 2 percent, settling at $47.96 a barrel.

Markets in recent weeks have been besieged by bad news, including a weak manufacturing report, a federal government shutdown and a warning about falling sales from Apple. Stocks ended 2018 with their worst performance since the 2008 financial crisis. Crude prices fell 25 percent during 2018, the first annal loss since oil bust in 2015.

The jobs report included little but good news. The unemployment rate ticked up to 3.9 percent from near-50-year-low of 3.7 percent, but it was for all the right reasons: rising wages and plentiful jobs convinced more people to look for work, economists said.

The Labor Department doesn’t count people as unemployed unless they are actively looking for jobs. An additional 400,000 people began seeking work in December, the Labor Department said.

With the strong finish to the year, the nation added 2.6 million jobs in 2018, the most since the 2.7 million gained in 2015.

Bill Gilmer, an economist at the University of Houston, said that he expects the economic expansion, which began in mid-2009, to become the longest on record, surpassing the 10 straight years growth of the 1990s. The combination of more people working and higher wages should support consumer spending, which accounts for about 70 percent of U.S. economic activity.

Consumer spending has increased for 9 consecutive months.

Markets got an additional boost Friday when Federal Reserve Chairman Jerome Powell indicated that the central bank Friday it is not on a fixed path to boost rates in 2019, retreating from earlier projections of multiple rate increases. That’s a sign, analysts said, that policymakers are adjusting to global economic slowdown, the result, in part, of trade conflicts between the United States and other countries, particularly China.

The Fed, in an effort to keep the economy from overheating into an inflationary cycle, raised it benchmark interest rate four times last year, including a quarter-point increase in December. The benchmark rate stands at between 2.25 percent and 2.5 percent.

Zandi doesn’t believe the Fed will raise rates at its upcoming meeting on Jan. 29 or the following one on March 19, which is just 10 days before the Brexit deadline for Britain to leave the European Union. That break could create tumult in global markets and the Fed would likely not want to add to the unease.

Economists are anticipating slower, but steady growth and modest inflation and fewer rate hikes than earlier anticipated, which should be good for the stock market. Zandi predicts the Fed could do “two or three rate hikes in 2019.”

“In short, 2018 was about strong growth and bad policy (while) 2019 is about slower growth and better policy,” saidsBrian Levitt, senior investment strategist for Oppenheimer Funds investment firm.

December’s job gains were broad-based, spread across all major employment sectors. Health care added more than 50,000 hobs. Construction, aided by mild weather, gained 38,000. Manufacturers added 32,000 jobs.

Metropolitan Houston job numbers for December will be released later this month. In November, the region added 8,900 jobs after gaining 7,100 jobs in November.

Houston’s unemployment rate was 3.8 percent in November.