I have been asked several times today about our reaction – from a Business Acumen perspective –
to the surprising jobs report that came out this morning so I figured I would write a quick blog for your weekend reading.
If you didn’t see it, the United States economy added more than 216,000 jobs in December 2023, which is a very strong showing that exceeded many forecasts and emphasized that the labor market remains smoking white hot.
If you are following these job reports, this is not the first time everyone has been surprised. It feels like for the past 6 months at least every client we work with – from pharmaceuticals to industrial chemicals – has been gearing up for a recession that is never going to come. Unless there is a recession driven by a self-fulfilling prophecy of cuts and more cuts, which quite honestly is going to put those companies at an extreme disadvantage, we have nothing to worry about and as a matter of opinion, better prompt decision-makers to make more investments in people and the business.
The facts speak for themselves; employment rose even faster than in November 2023, when a revised 173,000 jobs were added following the resolution of strikes by auto workers and the Hollywood actors’ union. The belief among economic and business experts was that only about 150,000 jobs would be created (which is still very good).
Here is where things get tricky and confusing from a business acumen perspective. There are two quick reactions that I have to share and for you to think about:
The Stock Market Reaction
Immediately after the news came out, I was watching the S&P index and the Dow Jones Index. Both of them had immediate declines. Notice the Dow Jones which had a 2-hour decline from 10am to about 1:30pm. After bottoming out, it started to come back and probably will get back to where it was at the start of the day. Nothing more, nothing less, which is surprising given the good news.
Interest Rates
The second part to understanding the trickiness of this is what is the impact of the jobs report on interest rates which unfortunately is much more important to the operational everyday workings of most businesses.
I believe that the market initially fell and didn’t like the report because it makes it extremely unlikely that the Federal Reserve will cut interest rates any time soon. That’s a big deal. The lower-but-still-way-too-high interest rates of today will be in place a lot longer than hoped as a way to continue to “cool down” the economy. The inflation rate, which is currently about 3.1%, is a lot better than the 9.1% from last summer (June 2023). But, remember, much of the big economic expansion and wealth creation of 2016 through 2022 was when interest rates were very low (non-existent) and cash was flowing into the economy unabated and that has become an expectation especially as we go into a Presidential election year.
Digging Deeper
From a practical business acumen perspective, I think it’s important to understand the why behind the extra surprising jobs report. It looks like the unexpected surge was driven by a few unique pockets in the economy including:
- Construction – A lot of people are fixing up their homes (as opposed to building and buying new ones) and it is driving the need for workers
- Healthcare – A lot of people are getting older and sicker and it is driving the need for workers
- Defense – All of the wars and conflicts are creating short-term and long-term jobs and driving the need for workers
Pockets that declined and actually lost jobs were:
- Warehousing – A lot of big companies and distributors have been “destocking” for months now and need fewer workers
- Transportation – We may have hit the wall of workers going “back” to the office and transportation like the need for cars, tires, paint, etc. is way down.
Retail, which is a classic bellwether of the US economy actually gained about 17,000 new jobs but an overwhelming majority of them were in the “big box” category of warehouse clubs and supercenters.
In summary, there are a few key elements to use your business acumen to think about over the weekend. It is clear that the economy is much stronger and more resilient than anyone anticipated. The job market is going to continue to heat up while inflation continues to cool down. The best, smartest, and most innovative companies are going to:
- Do more hiring and training than they forecasted
- Invest in longer-term capital projects assuming they lock in a reasonable interest rate
- Invest in even more Marketing to stimulate demand
- Take many more risks and try different things
- Look for ways to save on escalating costs by eliminating underperformers
