When it comes to the economy, are you an optimist or pessimist, bull or bear, glass-half-full or glass-half-empty kind of person?
I ask because the US jobs report released Friday is one of those that, depending on your predisposition, you will see as good, bad, or meh.
If you skew upbeat, then the good news is that employers added 130,000 jobs in August despite rising concerns about trade and weakening economies overseas. You’re also encouraged that the jobless rate was unchanged at 3.7 percent (near a five-decade low), some 590,000 more people were working last month, and that wages rose 3.2 percent over August 2018.
On the downside: Last month’s jobs gains were below forecasts, which ranged from 150,000 to 160,000 — and that included some 25,000 temporary Census workers added to the rolls; the tally for June and July was revised lower by 20,000; and the monthly average increase for 2019 fell to 158,000, compared with 223,000 in 2018.
“This jobs report had something for everyone,” said Megan Greene, an economist and senior fellow at Mossavar-Rahmani Center for Business and Government at Harvard’s Kennedy School.
The Labor Department’s release didn’t change the widely held opinion among investors and Federal Reserve watchers that the central bank will ease rates by a quarter point after its next two-day meeting, which concludes Sept. 18. That would follow the quarter-point cut the Fed made at the end of July to offset the risks to growth from the US trade fight with China, the Brexit imbroglio, and slowdowns in China, Japan, and Europe (let’s include the United Kingdom, for now).
“The jobs report, despite its somewhat mixed messages. . . shouldn’t send [the Fed] into panic mode,” said Peter Ireland, an economics professor at Boston College.
During a moderated discussion in Zurich Friday, Fed chairman Jerome Powell said the jobs data showed the labor market remained strong and the outlook for the economy was favorable.
“As we move forward, we’re going to continue to watch all of these factors, and all the geopolitical things that are happening, and we’re going to continue to act as appropriate to sustain this expansion,” he said.
Stocks edged higher because lower rates are good for equities. The Dow Jones industrial average gained 69 points, or 0.3 percent, to 26,797, while the Standard & Poor’s 500 index was up 0.1 percent.
In the bond market, where investors are less sanguine on the economy, the yield on the benchmark 10-year Treasury note dipped to 1.552 percent as the price rose. Bonds do better when economic growth slows.
We are in what is known as the late cycle of an expansion — in this case, a record-long stretch of growth that began a decade ago. That’s when corporate profits come under pressure, wages rise, and hiring slows down.
How long will this late cycle last?
The key is consumer spending, which drives more than two-thirds of the economy. And in August, consumer confidence fell the most since December 2012 amid concerns about rising tariffs, according to the University of Michigan consumer sentiment index. While the index suggests spending will continue to grow modestly, any further deterioriation would spell trouble for the economy.
In the late stage of an expansion, consumers start to run out of steam, and lower interest rates may well not be enough to keep consumption going.
“Can you fix pent-up demand when pent-up demand has been satiated?” said Lisa Emsbo-Mattingly, director of research for global asset allocation at Fidelity Investments in Boston. “It’s hard for rate cuts to solve that.”
Jason Furman, a professor of economic policy practice at the Harvard Kennedy School, isn’t too worried about the job market.
“The biggest problem is not creating enough jobs,” said Furman, who served as chairman Council of Economic Advisers under President Obama, noting that the economy needs to generate just 77,000 jobs a month to absorb new workers and replace retiring ones.
“It’s people not being paid enough,” he said. “We need more productivity growth. And workers to get a bigger share of the productivity gains.”
Bull or bear, that’s an idea most people can get behind.