Slow, steady jobs growth is good news

The November jobs number was marginally better than expected, and with upward revisions to prior months it adds up to ... pretty much the same kind of growth we've seen in recent years. There's nothing to get excited about—unless, that is, you were worried that the economy was slowing down and at risk of deterioration given that the Fed is almost sure to begin raising short-term interest rates in 12 days.

The charts above show the monthly change and the year over year rate of growth of private sector jobs. Jobs have been growing at slightly more than 2% a year for a number of years.

We're still mired in the "weakest recovery ever," given that real GDP is about $2.6 trillion below its long-term trend, but as the chart above shows, the private sector has created a lot more jobs in the current business cycle expansion than it did in the prior one. The net gain in jobs since late 2007 is now 5 million, which tops the 4 million rise in jobs from late 2000 through late 2007. From the low in early 2010, the private sector has actually created about 14 million jobs. That's not so bad, and it at least makes you question why so many continue to moan and grown about how terrible the economy is. Sure, we could and should be doing a lot better, but there is no denying that we have made considerable progress despite all the headwinds (e.g., high tax burdens, huge new regulatory burdens).

If there is one important point here, it is that this is NOT a fragile economy. It's an economy that has been growing at a slow but relatively steady pace for over six years, and there is no sign yet of any deterioration. When the Fed raises the interest it pays on excess reserves later this month to 0.25%, the impact on the economy is going to be de minimis. In fact, it might even be positive, if for no other reason than markets might become a little more optimistic about the future now that the Fed is demonstrably less worried.

As the chart above shows, the price of 5-yr TIPS (using the inverse of their real yield as a proxy for price) and the price of gold have been slowly declining for some 3 years. It take that as a sign of declining pessimism, since both these assets have unique qualities that make them "safe" investments. This tells us that markets are slowly losing the fears that built up in the wake of the Great Recession and the PIIGS crisis.

As the chart above shows, the equity market has been periodically upset by flare-ups in "worry," for which I use the ratio of the Vix index to the 10-yr Treasury yield as a proxy. The market gets very nervous from time to time, but then worries subside and equity prices rise. It's hard to get real worried when the economy demonstrates, as it has over the years, an ability to overcome adversity and just keep on chuggin' along, albeit slowly. As I've been saying for years, avoiding recession is all that matters when short-term interest rates are near zero.