A quick survey of the US economy
We attempt to track the US economy since a recession is the most common cause of an equity bear market–something we’d like to avoid if possible. Within the US economy we are focused on consumers, both as job holders and spenders. If jobs and spending hold up, a recession is unlikely.
Jobs are plentiful. In fact there’s never been an uninterrupted period of job growth like the last 9 years, going on 10. The table below compares the last decade with three other long streaks of job growth, all of which stalled out after four years.
But who’s getting the jobs? In the last 12 months there’s been a dramatic improvement in wage growth for the lowest paid groups. The chart below shows more than 3% growth for production workers compared with less than 2% for supervisors/management. Demand for workers is forcing employers to hire less skilled people and train them. (BTW, 3% wage growth may not sound like much, but as these numbers go, it is very healthy, and the best since 2008.)
The Labor Department keeps track of the number of people who quit their jobs each month. This number has been running over 3 million for the last four years, and well above the numbers achieved this century. People usually don’t quit unless they have a better opportunity elsewhere. So this is a good indicator of a strong labor market.
The unemployment rate is at levels not seen since the late 1960’s. No comment needed here.
The next chart illustrates the biggest surprise in the labor market: For the first time in history, there are more job openings than unemployed people in the US—1.6 million more. Again, this has never happened before.
Plentiful jobs that pay well translates into record personal income as seen below.
What are consumers doing with these earnings? As Americans usually do, they shop. Retail sales are hitting record highs. Bricks and mortar retailers are getting less than they used to as sales shift to the Internet, but it’s the total that counts when tracking the economy.
But they aren’t spending all of it. As we have mentioned before, Personal Savings are hitting record highs. Savings are running well over the 12 month level of $1 trillion, which was first achieved following the financial crisis.
Lot’s of jobs available, low unemployment, record personal income, record retail sales, and Americans are socking away savings—what’s not to like? No wonder talk of recession has faded.
To sum up, the US economy is in good shape and there’s no sign of a recession on the horizon. A good environment for equity investors…like us.
Daniel A. Ogden