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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