US Added 335,000 Jobs In January

The American economy smashed expectations last month as the US added 335,00 jobs in January. Economists had predicted the nation would add approximately 185,000 jobs. Revisions for December and November added about 126,000 jobs to those months as well.

Red Hot Economy

The January jobs report is just the latest sign that the US economy continues to run red hot. GDP growth has blown past expectations in the past 2 quarters. Job growth, which many had expected to slow down in the face of high-interest rates from the Federal Reserve, has continued to soar.

The job market continues to be a source of strength for the US. Despite high-profile layoffs in the tech sector, hiring continues briskly and shows no signs of slowing.

For months, economists have predicted that pandemic-era savings were drying out and American consumers would slow down on their spending. But wages have begun to rise faster than inflation, giving the average consumer enough cash to keep the consumer-based economy chugging along.

Speaking of inflation, the rise in the cost of goods has continued to slow in recent months. The supply shortages of the pandemic are now largely a distant memory. Combined with rapid rate increases from the Fed, it appears the battle against this economic roadblock has been largely won.

Doomsayers Not Giving Up

Despite month after month of positive economic data, doomsayers continue to claim a recession is right around the corner. However, the data simply does not support this belief.

There are two big reasons why some continue to push the looming recession narrative. There are many who no doubt have short positions that they are trying to cover. Essentially, they bet on an economic downturn and are getting killed financially by the red-hot economy. It is key to remember that the investor class has ways to make money even when things go bad.

Politics plays a big role in these economic beliefs as well. We are now in a presidential election year. A strong economy benefits the party in power and harms the challenger. The opposition party will be looking for any signs of weakness in the economy and placing them under a magnifying glass.

The Fed’s Next Step?

The current economic expansion shows no major signs of slowing down. However, at some point, things will inevitably slow down. The question becomes, will the Fed act quickly enough to keep the expansion going?

Those who predicted a rate cut in March were always exhibiting wishful thinking. After being slow to react to the current bout of inflation, the Fed has been quite aggressive in battling it. One would expect them to be cautious with letting their foot off the gas.

June was always the more realistic target date for the first rate cuts. The Fed has telegraphed such a move, but investors just didn’t want to hear it. The latest jobs data might bring some of them back to reality.

The danger in cutting rates too soon is that it could push inflation higher again. The economy is growing tremendously even with 5+ percent interest rates. Flooding the market with cheap money could overheat the economy.

The Fed has done a good job so far navigating a minefield in the wake of Covid-19. I expect them to continue their good work going forward.