Mike Burnick: Stocks have been locked in a zigzag trading range since late last year, as Dr. Weiss recently pointed out, and the January Barometer is also flashing caution after the S&P 500 fell 3 percent last month.
That’s why investors where closely watching last Friday’s jobs report for clues about the health of the economy, and which way stocks could move next.
The financial media and many investors focus on the “headline” number … the number of new jobs and the unemployment rate. And by these measures, the report was indeed a positive surprise with 257,000 new non-farm payrolls added last month.
But what some folks may have missed is the even better news for U.S. consumers, which was hidden in the details of the report.
In my view, the most important number to focus on at this stage of the economic cycle is INCOME growth. After all, consumer spending accounts for 70 percent of U.S. GDP, so if you think about it, trends in wage growth — the increase in take-home pay for the average American — can be even more important than corporate profit growth.
|Consumer spending is critical to the outlook for our economy.|
The global economy is slowing. Europe is a mess; Japan remains stuck in deflation, even faster-growing emerging markets are experiencing a slow-down. In this climate, the U.S. economy is a bastion of prosperity, compared with the rest of the world.
That’s why the sustainability of consumer spending is critical to the outlook for our economy. Faster wage and salary growth for the average American equals strong consumer spending; keeping our economy on the right track. It’s that simple.
That’s why two additional data points from last week’s jobs report are worth a closer look: Average hourly earnings and aggregate hours worked. Let’s do the math: Multiply hours worked by hourly earnings, times roughly 120 million private sector workers and you get aggregate income growth for American consumers.
Going back to last Friday’s report, you’ll see that the average workweek expanded to 34.6 hours, a new post-recession high.
Average hourly earnings also expanded by a better-than-expected 0.5 percent last month, which doesn’t sound like much. And a few talking heads on CNBC claimed it was all due to higher minimum wages taking effect.
But the truth is aggregate income growth is not only trending in the right direction, it’s accelerating. And that’s bullish for the U.S. consumer, the overall economy and stocks!
As you can see in the chart above from Bloomberg, aggregate income growth was stuck in a narrow range between 4 percent and 4.5 percent from 2011 through late last year.
But in October of last year, income growth moved above 4.6 percent, jumped through the 5 percent level in December, and accelerated again to 5.7 percent in January.
A very positive uptrend that tells me the U.S. consumer is alive and well.