There are times when one wants to be wrong. I have felt this way several times in the past 15 months, whether in warning last year that inflation would not prove transitory or cautioning that the Federal Reserve was rapidly falling way behind on its inflation objective and running out of first-best (“soft landing”) policy options.
Today, my discomfort relates to the view that the recent jobs report implies that the US will now avoid a recession, a view that several analysts have embraced and which is reflected in prices for stocks and corporate bonds. While I very much hope this view is correct, I believe it is too early to declare the recession watch over, something that the government bond market seems more attuned to.
Don’t get me wrong, the report was very strong. Jobs increased by 528,000, twice the consensus forecast and bringing US employment above its pre-pandemic level. At 3.5 per cent, the unemployment rate is at pre-pandemic lows, and wages are now growing at 5.2 per cent, again above consensus. The one disappointment is a labour participation rate that continues to slip lower.