The prevailing narrative on the U.S. economy has downshifted, as three consecutive months of disappointing job growth raise concerns about a serious slowdown.
There’s some good news to offset the bad, however: household incomes have finally shown a sharp gain, which means the typical family’s purchasing power is bouncing back. And the pace of car sales is accelerating toward record levels, with consumers more than willing to commit to costly long-term purchases. Meanwhile, several other indicators that don’t get as much attention as the monthly jobs report show sustained improvement in key parts of the economy.
The monthly employment report tends to dominate the markets, however, and stocks largely tanked on the news that employers created only 142,000 jobs in September, about 60,000 fewer than expected. In the past, markets have often interpreted bad news about jobs as good news for stocks, because it would prompt the Federal Reserve to push interest rates lower or keep already-low rates in the basement. But markets now seem to think bad news is just plain bad news, as if a few months of weak job creation tell us the economy might be stalling. "Silver linings were tough to come by in the September jobs data," Bloomberg reported after surveying several economists.
There are silver linings in other data, however. A new report by Sentier Research, for instance, shows that median household income, adjusted for inflation, grew by $615 in August, to a post-recession high of $55,794. Real incomes are still about 2.7% lower than they were in 2000, indicating ongoing stress on American consumers. But the trend is improving after a period of stagnation, as this chart shows:
Median Household Income Index (in red)
Robust auto sales seem to confirm that consumer finances are improving. Sales in September hit an annualized rate of 18.2 million, which is close to the strongest level ever. Low interest rates and cheap gas prices help, but strong sales are not the result of desperate discounting, which has sometimes been the case before. The average price paid for a new car these days is more than $31,000, a record, according to TrueCar.com. This chart shows how sales have rebounded steadily since the darkest days of the recession:
Monthly Auto Sales, annualized rate
Automakers are making good money these days, which is obviously good for employment and may also allow unionized auto workers to demand better pay during upcoming negotiations with General Motors (GM), Ford (F) and Fiat Chrysler (FCAU). Home builders are doing better, too, with a pickup in both commercial and residential purchases pushing construction spending back to very healthy levels:
Construction Spending, millions of dollars
And while job growth may be disappointing, jobless claims are at the lowest level since 1973, as the chart below shows. Companies may not be hiring aggressively, but they’re not laying off many people, either:
Weekly Jobless Claims
What all four of those charts show is unspectacular but steady improvement in important sectors of the economy—including the job market, even if antsy traders feel otherwise for the time being. The latest numbers are “just a continuation of the good, not great, slow labor recovery we have been living with for the last 5 years,” say economists at Wells Fargo. It’s worth keeping in mind that good, not great, is a lot better than lousy.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.