Market Conditions

For Jobs Report, Glass Half-Empty or Half-Full?

The first jobs report post the surprise (and for many, shock) of Donald Trump’s election can be viewed, as so much in life and in markets, through a glass — half-empty or half-full.

The headline numbers: Employers added 178,000 jobs to their payrolls last month, just shy of the 180,000 jobs consensus had held for November. The unemployment rate has now come down to 4.6 percent, which is the lowest level seen since August 2007. As has been a continuing trend, we’re at roughly full employment.

If you view the glass as half-full, then Donald Trump has been left a pretty healthy economy, with gains in evidence, albeit slower than some might like. The latest jobs number is likely going to give the Fed further impetus to hike rates, along with the recent inflation data that shows at least some uptick. A rate hike is safely assumed, by the markets and by the economy, as stocks rose and hiring proceeded apace, indicating that the first quarter point hike has been factored into both near- and longer-term outlooks.

But what about the half-empty scenario? The first jobs report post-election also begs the question as to what one does for an encore: This low jobless rate gives one pause to consider just how economic gains can proceed to the upside (it’s only half tongue-in-cheek to say we’re all working, and just as fast as we can). If inflation continues to rise on, say, wages (which have been running overall at levels above general inflation trends), for example, then further rate hikes may come along, enough so that the tradeoff between growth and stymied growth becomes tricky. In the meantime, as Trump looks to return manufacturing jobs to a domestic setting, one wonders if higher rates may offset some of that impetus by firms to hire and grow.

For the markets, thus far, the reaction has been benign. At this writing, the broader indices are flat. But the rally that has been sustained in the past three post-election weeks has brought valuations to levels well above historical means (the S&P trades at 20 times earnings, according to some analyses, compared to an average 15 times) – which also implies that the Trumpian promises of growth have been factored in. The Trump administration may have been handed a strong economy, but the balancing act to maintain that strength in reality will require deft maneuvering.

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