Do you want to know what the perfect economy for the stock market is? Look no further than this one where you have fabulous job growth and almost no inflation.
For years we have heard that good news is bad news, meaning that as the economy gains steam the Federal Reserve is going to raise rates and wreck the economy and the stock market.
But this non-farm labor report truly questions that dogma because the economy created 218,000 jobs and we only saw eight cents worth of wage inflation.
Not only that but this is an economy that is generating jobs where there ain't been no job growth: manufacturing adds 18,000 workers, including 6,000 in machinery. The manufacturing economy has now added an astounding 256,000 jobs over the year; who would have thought that could happen again. Retail tacked on 31,000 jobs; so much for Amazon (AMZN) wiping out the industry. Transportation and warehousing, a once moribund category added 19,000 jobs. Despite bad weather for much of the country in May, construction companies hired 25,000 people.
The only number that was surprisingly weak is actually a good number to be weak: health care with 29,000 new jobs. Health care has taken too much of the gross domestic product for too long, something that forced JP Morgan's (JPM) Jamie Dimon, Amazon's Jeff Bezos and Berkshire's (BRK.A) (BRK.B) Warren Buffett to create a consortium to figure out how to bring down health care costs. Hiring away from this sector is good news if only because more people can afford health care.
These numbers would not have occurred without tax reform. I keep hearing pundits say that the windfall is going right to the stock market to fund big buybacks and dividends. Yes, there have been more of both but I think it's a bit of a canard as companies are trying to expand as fast as they can to meet demand with the gating factor often being the pool of workers available. When Union Pacific (UNP) is offering bonuses for as much as $10,000 to $25,000 you know that we are shy enough workers. The good news? Formerly undesirable but actually valuable workers who have spent time in prison and have been released are now getting jobs. The bad news: we have such tight immigration laws that we aren't going to see the influx needed to continue to keep wages low for long.
There are so many benefits to bigger employment. Gross domestic product could go as high as 3% which will raise the amount of money the government gets from taxes and therefore lower the deficit. More households will be formed that support consumer spending, which is two-thirds of the domestic economy. College graduates with big student debt can get out from under. Minorities, who have historically and sadly had a harder time getting jobs are being employed in record numbers.
And, topically, we have never been more able to stand up to those countries that rely on our economy to sell goods much more cheaply than we can because their industries are subsidized. I think that many of our allies, by the way, are missing the point. They are all dealing with Chinese dumping, say, in steel, and their reaction is to take their excess steel and dump it here. They should have united with us to stop China's dumping. They didn't. But because we have such strong employment I am far less worried for the consequences as a nation even as I remain wary for those who own stocks.
Let's not lose the takeaway though, a boom is a boom is a boom and good news is, alas, good news for all to see.