Today’s jobs report in the US showed some fairly bullish headline numbers. Not only did the unemployment rate did to a 49-year low of 3.6%, but the monster 263,000 job addition was bolstered by net revisions of 16,000, bringing the total to 279,000 jobs.
I don’t want to go into the minutiae of this report. But I would highlight the household survey saw the size of the labor force decline by 490,000, bringing labor force participation down to 62.8%. So not everything in this report was good.
Nevertheless, the jobs report paints a picture of a US economy that is still firing on all cylinders. The question now is whether the uptick in positive US data is meaningful. It goes to my question of how long the re-acceleration from the poor early Q1 data will last.
Let’s get at that question in a different way by looking at year-over-year growth in nominal GDP. The reference period here is the post-crisis stabilization in 2010 to present.
Source: St. Louis Fed
What you see here is that the little uptick at the end of Q1 in data didn’t stop the year-over-year numbers from declining from this cycle’s high in 2018. Year-over-year nominal GDP growth topped out at 5.46% in Q3 2018 and has declined in each quarter since. Growth last quarter was still at a level higher than all but a few quarters. But the trend was still down.
So, for re-acceleration to be meaningful, we would have to see that change in Q2. Given how good Q2 2018 was, I don’t think it’s going to happen. I expect year-over-year nominal GDP growth to decline further.
In sum, I see this as sort of a Goldilocks scenario right now – ripe for risk-on asset allocation. We are decelerating modestly from the stellar growth from the middle of 2018. There is no sign of recession anywhere. Yet, at the same time, there are no data points that would alarm the Fed and cause it to turn hawkish. Worries about the cycle end being just around the corner will keep a lid on euphoria. But it will also provide the grist necessary for risk assets to grind higher.