This post comes late in the day, because this morning I attended the birth of my fifth grandchild and first granddaughter (mother and child both doing great). It marked the 8th time that I have been a part of the delivery of my children and their children—all great moments that I will treasure.
It's a short post, because the jobs report was quite unremarkable.
Although the gain in jobs was above expectations, the trend has not changed at all. Private sector jobs have been growing at about a 2% annual pace for almost three years—sometimes a little faster, sometimes a little slower. It's the same pace as we saw in the mid-2000s.
It should be a lot stronger given the depths of the last recession, but it's not, and for a variety of reasons. The market has worried for almost two years that the economy would suffer a "double-dip" recession, but it's just not happening. The economy has managed to grow despite awful fiscal policy: way too much spending, which squanders the economy's scarce resources; way too much in the way of transfer payments, which create perverse incentives; a huge increase in regulatory burdens and uncertainty, which saps business confidence and chills investment; and more recently higher marginal tax rates, which reduce the incentives to work and invest.
The economy has managed to keep growing this year despite the expiration of the payroll tax cut and higher marginal rates on upper income earners. It's managed to growth despite two years of recession in the Eurozone, and a slowdown in the growth of the Chinese economy. And it's managed to grow despite the enormous monetary uncertainty created by the Fed's unprecedented Quantitative Easing.
It's been a disappointing recovery, and a reluctant recovery, but it has nevertheless been a recovery, and it shows every sign of continuing at a modest/moderate pace. The private sector has managed to create about 7 million new jobs in the past three and a half years. The public sector, meanwhile, has lost about 750,000 jobs, and job losses there appear to be coming to an end. The economy is getting back on its feet, slowly but surely, but it could use some help.
There are new reasons to be optimistic about the future. Regulatory burdens may ease now that Obamacare has effectively been put on hold for the next 18 months (see my earlier post on this subject), and the odds are rising that it might even be repealed. If we get lucky, Congress may replace Obamacare with more sensible reform, and that could prove to be a huge boon to the economy. It's doubtful we'll see any further rise in tax rates, thanks to the huge improvement in the fiscal outlook; tax uncertainty has been reduced significantly. Finally, the outlook for monetary policy is improving, as evidenced by the recent sharp rise in interest rates. Higher rates are a sign that the market is becoming less pessimistic about the economy, while at the same time gearing up for the tapering of Fed bond purchases and the inevitable moment when the Fed starts raising short-term interest rates.
In the absence of recession, and with prospects for improvement in fiscal and monetary policy, risk assets continue to look attractive, with the notable exception of gold, which is suffering because the outlook for the economy and monetary policy is improving.