Listening to Donald Trump and Hillary Clinton speak about jobs on the campaign trail, it’s hard not to believe that the labor market is a mess. The fact is that the labor market is the strongest it has been in 15 years, said Jeffrey Cleveland, chief economist at Payden & Rygel. “Layoffs are at all-time lows. Job openings are at all-time highs. We are on track to add another 2.4 million jobs in 2016. The unemployment rate is steady, despite the fact that 2.4 million people re-entered the labor force. Wage growth is picking up,” said Cleveland. “Why is everyone so glum?” he adds. When it comes to inflation, however, Cleveland said the Federal Reserve is not seeing things clearly. He said the Fed keeps talking about inflation below its target and many investors say they can’t spot it either, especially after the core PCE came in at 1.6% on the latest reading. But macro investors who invest only on the basis of one indicator do so at their peril, according to Cleveland. Most measures of core inflation are at or above 2%. At a minimum, confidence that inflation is certainly depressed seems misplaced in Cleveland’s view. As for the election itself and whether it can historically be linked to a recession, Cleveland thinks not. Election years are rarely followed by recessions in the following 12 months. Since 1900 there have been 9 election years that saw a recession in the following year. “Out of the 29 years following elections, that means that recessions occur 31% of the time,” said Cleveland. “However, over the same time period, statistically there is roughly a 25% of a recession starting anyway.” Said differently, recessions after presidential elections are only marginally more likely than one might expect by pure chance. The good news, according to Cleveland, is the business cycle likely continues into 2018, meaning stocks can continue to rise.
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