Recession appears a long way off

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The strength of Friday’s employment report confirms that growth will pick up and recession is unlikely before 2023, according to at least one expert.

Scott Colbert, executive vice president and chief economist at Commerce Trust Company, said the strong labor market will prevent recession in the U.S. “When you’re employing more people, you never have a recession,” he said. “The strong November jobs report is confirmation that growth will be better next year.”

Despite concerns because ADP’s numbers came in below projections, and seasonal adjustments at this time of year can skew things, the 266,000 jobs added is just another sign “fundamentals remain awfully strong.”

And while Colbert expects no recession before 2023, “the gig wild card is the election and which Democratic candidate gets their mojo by Super Tuesday.”

The Federal Reserve is on pause. History suggests it will be a while before it begins raising rates again. After the Great Recession it took the Fed eight years to start raising rates and it won’t raise rates until inflation is over 2%, Colbert said. “The question is how long is it going to take them to raise rates again. You may be surprised because rates could be lower for longer than most people expect.”

Colbert expects the Fed to negotiate a soft landing.

Jeffrey Cleveland, chief economist at Paden & Rygel, agreed on a positive outlook. “We expect an even tighter labor market in the year ahead — and a tighter labor market is great news for the average U.S. consumer, and ultimately, for economic growth, in our view,” he said. “In short: there are plenty of reasons to remain optimistic as we head into 2020.”

It's unlikely "the Fed will tighten and end the cycle," he said. "It’s more likely the Fed will be happy to sit on hold, watch the unemployment rate fall further, and hope to 'make up' for recent low inflation readings with higher inflation in the years ahead. And, finally, if your narrative is that 'central banks are propping up markets,' then remember: the Fed is expanding its balance sheet again — rapidly."

The jobs gain was termed a “blowout” by Tony Bedikian, head of global markets at Citizens Bank. “The U.S. economy continues to be all about the jobs.”

The jobless rate remains at a 50-year low and wages are growing. “Business owners may be getting more cautious due to trade and political uncertainty and growth may be slow, but consumers keep spending and the punch bowl still seems full,” he said.

The jobs number beat expectations, plus the September and October numbers were revised up by a total of 41,000 jobs, noted Bryce Doty, senior portfolio manager at Sit Fixed Income Advisors. “Expectations were for 180,000 jobs, which I thought might be optimistic given the 67,000 jobs ADP reported,” he said. “Yields are spiking and inflation expectations are rising on the news. If it wasn’t for the repo debacle, the Fed would be expected to raise rates on these numbers.”

This “definitely bodes well for a strong holiday sales season and bolsters estimates for broad economic growth next year,” Doty said.

The report “depicts a strong labor market, reinforcing the Fed’s decision to take a pause at next week’s FOMC meeting,” said Stifel Chief Economist Lindsey M. Piegza. This “welcome reprieve from a slew of frustrating and disappointing data,” if continued and accompanied by an “expected rise in inflation, certainly justifies a continued or even indefinite pause in accommodation.”

Comparing this and data from the recent Institute for Supply Management non-manufacturing report, "suggests a gap in sentiment indicators and real hiring decisions," according to BNP Paribas Securities' Chief U.S. Economist Daniel Ahn, U.S. Economist Andy Schneider and Macro Quant Strategist Joel Alcedo. "Trade worries may be affecting the former but not the latter at present."

“Conditions remain firmly in place for the consumer and the service sector to cushion the economy from external risks and related weakness in U.S. manufacturing,” according to Brian Coulton, chief economist at Fitch Ratings.

Consumer sentiment
The University of Michigan’s preliminary December consumer sentiment index rose to 99.2 from the final November 96.8 reading, while the current conditions rose to 115.2 from 11.6 and the expectations index climbed to 88.9 from 87.3.

The inflation expectations dropped to 2.4% from 2.5% for a one-year interval and to 2.3% from 2.5% over five years.

Wholesale trade
Wholesale inventories grew 0.1% in October, while sales fell 0.7%, the Commerce Department reported. In September inventories fell 0.7% while sales dipped 0.1%.

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