Research from Torsten Sløk, Ph.D., Economist, Deutsche Bank Securities ---
I continue to get a lot of questions about how to interpret Friday’s employment report. One interpretation is that the economy is slowing and therefore the Fed will not hike anytime soon. The problem with this story is that there are no good reasons why the economy should be experiencing a slowdown now. If anything, the turbulence in markets in January and February is now further away and companies should feel more comfortable and increase hiring. This is the pattern we have seen for US consumers; as we have moved further away from January and February consumers have felt better and consumer spending growth has been accelerating. Another interpretation of the employment report is that the economy is very close to full employment. At full employment job growth will begin to slow because there are fewer qualified workers available to take jobs. And if there are fewer qualified workers available then wages should also be trending higher, which is exactly what we are seeing, see chart below. The bottom line is that when the incoming data surprises to the upside or the downside then we need a story why growth is accelerating or decelerating. And there are simply no good reasons why the economy should be slowing at the moment, in particular not in light of the ongoing acceleration in consumer spending. This view is also confirmed by the latest Atlanta Fed GDPNow estimate, which currently stands at 2.5%.