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Today’s September jobs report was viewed by some as evidence that the recovery was slowing. I’ve always argued that private sector jobs are much more important than public sector jobs, and they increased by an impressive 887,000 in September (vs +661,000 total jobs). Chart #1 focuses on these two sources of jobs, and both use a y-axis with the same ratio. What stands out immediately is that private sector jobs have grown much more than public sector jobs in the past 12 years, and in recent months. Private sector jobs have now recovered about 54% of the losses that occurred due to the Covid shutdown, whereas public sector jobs—despite Census hiring—have rebounded by much less, and are actually lower today than they were prior to the Great Recession. I’d say the private sector recovery looks pretty much like a V-shaped recovery. More than half the jobs lost have been recovered in just 5 months! And meanwhile the public sector has been slow to recover, one more sign that the private sector is inherently more dynamic than the public sector.

Chart #2

Chart #2 makes the same point: the unemployment rate has reversed much more than half its rise in just 5 months. 

Chart #3

Yesterday’s ISM report provided further evidence of rapid recovery. Both the US and Eurozone manufacturing indices have rebounded very strongly from their Covid lows, and both are now consistent with relative healthy economic growth conditions. Note that the Eurozone suffered much more than the US as a result of their early and drastic lockdowns, which in the end did little or nothing to eradicate the virus. 

Chart #5

Chart #5 shows that swap spreads continue to signal very healthy liquidity conditions and very low systemic risk in both the US and the Eurozone. By this important—and often leading—indicator, the fundamentals look great.

Chart #6

Chart #6 shows two all-important measures of the Fed’s monetary policy stance. The real Fed funds rate (blue) is decidedly negative (which implies very easy monetary conditions), while the slope of the Treasury yield is positive. Low real rates and a positively-sloped yield curve strongly suggest we are in the early stages of what could prove to be an extended recovery. At the very least it’s safe to say that the Fed poses no risk to the economy for the foreseeable future. Note that all previous recessions were preceded by high real rates and a flat or inverted yield curve slope.

Chart #7