Last week’s strong jobs report bodes well for the economy
By Joe Higgins, Quest 4 Quality
- Consumer confidence falls
- U.S. economy adds 372,000 jobs
- Economists see this level of job creation as a positive sign
Two weeks ago, the big news for the U.S. economy was the weakness in the consumer confidence numbers, which often indicates a looming recession. Then this past week, we had a solid jobs report which has historically meant that the U.S. is not headed for recession.
Conflicting numbers and odd indicators are a part of the new normal in our economy. In my presentation at Summit, I called this “the 50/50 economy:” the glass is both half full and half empty. Things are moving so fast it is challenging even for an economist to stay abreast of inflation, interest rates, GDP and all the other numbers that impact our economy. So, my column this week will both torment and comfort you.
Consumer Confidence
The Conference Board’s Consumer Confidence Index (CCI) fell to troubling lows in June, mirroring the numbers from the University of Michigan’s monthly poll on consumer sentiment. This is a concern because a significant drop in consumer confidence often precedes a recession and sometimes causes it. The index for June 2022 fell to 98.7 from 106.3 in May.
It is easy to guess why the mood has changed so radically in the past three months — consumers are suffering from some of the worst fears about inflation we have witnessed in 40 years. Every trip to the gas station is a crisis for many, and food costs are dragging down shoppers’ morale.
The CCI survey asks respondents about expectations for the future. In June, the reading fell below eight, indicating that Q3 and Q4 could see a slowdown in consumer spending and raising the risk of recession in 2022. It is possible that we could see a downturn in spending and growth as the Fed continues raising interest rates to slow our current inflationary cycle.
Jobs, Jobs, Jobs
Economists believe it is hard to have a recession when employment and wages are growing. Even though spending is weakening and confidence is declining, low unemployment will be the one thing that will buoy the economy.
In June the economy added 372,000 jobs, exceeding expectations of 250,000, and the unemployment rate held steady at 3.6%. Wages grew by 5.1%, which is a deceleration from the 5.2% increase we recorded last month.
The job numbers caught many economists off guard, as we thought the Fed’s 1.5% increase in interest rates would severely impact the job creation. Keep in mind that employment is the key component of the U.S economy and job growth is an indication of future strength. It should give our dealers hope that everything is not going south.
The impressive job numbers and rising wages mean that Jerome Powell and other Federal Reserve officials will probably move forward with plans to hike interest rates another 0.75% this month, which is in line with the move they made in June. The Fed wants to push down labor to reduce the demand for goods and thus bring down inflation to its target of 2%. This action could cause a recession, as housing and consumer spending have seen slower growth in the past two months, which will likely continue into the second half.
In addition, there were still more than 11 million job opportunities for the unemployed in June, which works out to two open positions for every job seeker.
Historically, recessions are marked early by a massive loss of jobs, as we witnessed two years ago when 20.6 million Americans were laid off amid the pandemic. Indeed, since 1951 every recession in the U.S. has seen a significant loss of jobs in the first quarter of a fledging recession. In 2020, the unemployment rate ballooned to 14.8% and then gradually declined to 6.8% by the end of the year. At the same time, GDP declined 5%, and then fell by more than 31% in the second quarter.
As the Fed tightens its monetary policy and job losses begin to grow, remember that this is what we need to bring down prices and reduce the pain of inflation.
Bottom Line
Whether it is going up or down, confidence among American consumers can be fleeting. If the Consumer Price Index drops this week or the war in Ukraine ends or if another stimulus plan were proposed, confidence would spike and consumers would feel better about the economy. This is the ephemeral nature of confidence.
Job creation and momentum are a fact of life; thus, increasing job numbers and wages are something we may see throughout the rest of this year. They may level off as interest rates rise, but they will also protect us against recession in 2022.
As expected, consumers are beginning to cut back on services due to travel nightmares, rising interest rates and the resurgence of COVID-19. At the same time, orders for durable goods were up 0.3% month over month in June. Please take this as good news for our business: We expected Americans to spend money on travel, not physical goods. But it looks like consumers, who are sitting on record home equity, will continue to upgrade their homes with new appliances, furniture and electronics.
Joe Higgins is a 43-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant, public speaker, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at www.q4qwithjoe.com
