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Were Today's Jobs Numbers a Giant Headfake?

Unemployed Americans attend a National Career Fair
Mark Ralston | AFP | Getty Images
Unemployed Americans attend a National Career Fair

While todays news about jobs in the service sector looks like good news, theres a strong possibility that it is evidence of a headfake.

Jobs in the U.S. service sector expanded in February at the fastest pace in more than five years, according to this mornings report from the Institute for Supply Management. The ISM service-sector index rose to 59.7 last month, from 59.4 in January. We've now had six straight months of service sector job growth.

Here's what worries me. While job growth is great, it is only one side of the economic question. If job growth outpaces consumer spending, were setting ourselves up for a brutal reckoning.

And the news on consumer spending isnt great. Real consumer spending on services fell 0.1 percent in January after a 0.2 percent increase in the prior month. Consumer confidence is falling. According to Discover Financial Services' (DFS) monthly consumer-spending index, consumer confidence fell in February.

How can consumers and businesses be headed in opposite directions? I think it might be the influence of the payroll tax-cut. The Obama administration believed the payroll tax cut would be an economic stimulus, leading to increased consumer spending. I wouldnt be surprised if many businesses had the same expectations, ramping up hiring to meet the new demand.

But the payroll tax cut didn't work. As we predicted here at NetNet, consumers saved far more of the tax savings than the Obama administration predicted.

In short, this good jobs number may just be evidence of a government induced mass delusion on the part of businesses about the future of consumer spending.

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