I said last week I don’t believe Wall Street investors are irrationally exuberant at present, contrary to those that say we are now in a stock market bubble with the record level S&P and DOW indexes.
That’s because March nonfarm payrolls increased 303,000, far above the 200,000 average poll of economists, and the unemployment rate fell slightly from 3.9 percent to 3.8 percent. This may finally put a dent in those pessimists polled that would deny the US economy is continuing its surprising surge.
Why? Government employment increased by 71,000, higher than the average monthly gain of 54,000 over the prior 12 months. It was mostly in local government (+49,000) and federal government (+9,000). Construction added 39,000 jobs in March, about double the average monthly gain of 19,000 over the prior 12 months.
This is largely because of President Biden’s New New Deal legislation such as the Infrastructure and Inflation Reduction Acts, but also expanding CHIPS production and a host of health care addons, all government largess that is boosting overall economic growth.
Health care added 72,000 jobs, as Biden has expanded healthcare coverages, while Obamacare enrollment is up 21 million this year.
Will this finally begin to change the irrational pessimism of Main Street, in the main ordinary working adults in the PEW study I’ve been highlighting?
In a poll by PEW Research, “About three-in-ten Americans (28%) currently rate national economic conditions as excellent or good, while a similar share (31%) say they are poor and about four-in-ten (41%) view them as “only fair.”
There’s still the inflation worry, which combined with the 8.5 percent Prime Rate that sets credit card and installment loan interest rates, is making consumers nervous.
So the key to trends are short and long term inflation expectations measured in the various surveys. And consumers don’t see inflation improving in the near term, which I maintain is in part due to the too-high Prime Rate.
I highlighted a recent National Bureau of Economic (NBER) working paper that concluded one reason consumers remain unconvinced that economic conditions have improved is because if borrowing costs were included in the inflation data, the inflation rate would be much higher.
The Federal Reserve Bank of New York’s Center for Microeconomic Data released the February 2024 Survey of Consumer Expectations, for instance, which shows that inflation expectations remained unchanged at the short-term horizon, while increasing at the medium- and longer-term horizons.
The Conference Board is similarly less sanguine about inflation: “Consumers remained concerned with elevated price levels, which predominated write-in responses, said Dana Peterson, its Chief Economist. “March’s write-in responses showed an uptick in concerns about food and gas prices, but in general complaints about gas prices have been trending downward.
Most Americans are exhausted and still recovering from the pandemic. And they rely on their immediate experience; much of it due to the post-COVID gyrations of the economy.
PEW in the recent poll said, however, expectations for future economic conditions are more positive than they were last spring: Today, roughly a quarter say that they expect economic conditions will be better a year from now (26%) – up from 17% in April 2023.
There is hope, in other words, the pessimists will eventually realize a surging stock market means higher corporate profits, so stocks aren’t yet overvalued. Companies wouldn’t be hiring this many workers if profits weren’t growing, so their jobs are safe.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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