One top economist has warned that even as the December jobs report came in strong, showing another month of solid employment gains, investors should remain on alert to any potential indications of a pending recession.
Beth Ann Bovino, chief U.S. economist at S&P, said in an interview with Yahoo Finance, “I do see that some of the pain that households are feeling… in terms of the inflation on their pocketbook means they are starting to pull back on spending. Businesses who basically switched from just-in-time to just-in-case [inventory] are now sitting with inventory they need to unload. That means if they unload it, they’re going to unload it at a cost and they will have to let go of workers.”
Bovino added she is still expecting a “shallow” recession later this year.
She added, “We do expect to see the unemployment rate climb higher. Not at the same level of the pandemic, but closer to 5.6% by year-end or early next year.”
In December nonfarm payrolls increased 223,000, as unemployment fell for the month to 3.5%, according to the Bureau of Labor Statistics (BLS) report on Friday. Economists had forecasted payrolls to increase 202,000, and unemployment to come in at 3.7%.
The US economy added 4.5 million new jobs over the course of 2022, which works out to an average monthly increase of 375,000, although that moderated as the economy began to cool later in the year.
Investors were buoyed by the slowdown in jobs growth in December compared to November, as well as the downward revision of job growth numbers for October and November.
The Dow Jones Industrial Average rose over 500 points on the news, as investors hoped it would mean the economy was cooling enough to prompt the Federal Reserve to moderate its policy stance going forward.
However many analysts say it is still too early to get bullish on stocks, given the Fed has continued to sound a restrictive note in statements, and the economy could still tip into a recession in the coming months.
JPMorgan strategist Meera Pandit said in an interview, “It’s just one report,” and that the labor market was still strong enough that the Fed could continue to raise rates to counteract the effect of strong wages on prices.
