The Recession That Wasn't

The market got a big boost this morning from a better than expected jobs report. Nonfarm payrolls declined by -20,000, which was far less than the -75,000 forecast. Also, the unemployment rate ticked down to 5.0%, while economists predicted it would move higher to 5.2%.

Moreover, most of the job losses came in the manufacturing and construction sector, while the much larger services sector actually added 90k jobs. And the private household employment component of the report soared, after two months of losses. Hardly the stuff of recession.

Yesterday I mentioned that although the media had declared it a foregone conclusion that the economy was in recession, the data simply didn't support that notion. Today's data goes even a step further towards that argument, and the odds of an official recession are falling by the day. (note: the odds on Intrade for a recession have fallen below 25%)

I got some flack for my call yesterday, but it was all from people in the real estate sector. So let's be clear: there IS a real estate recession going on, and it is severe. The credit crunch on Wall St. has also made it very tough for anyone in the lending business. But outside of those areas, there simply isn't enough weakness to drag the entire U.S. economy into a full blow recession. Are we clear?

And with the government rebate checks in the mail, consumer spending is about to get a big shot in the arm. That should boost Q2 and Q3 GDP. So if you need two consecutive quarters of negative GDP to declare recession, and we didn't even see negative GDP in Q1, it is becoming increasingly difficult to see we get to recession.

Separately, the Fed announced this morning another step toward coordinated efforts with European Central Banks to increase liquidity and stem the credit crunch. It said it is increasing its TAF facility to $150 billion from $100 billion.

The dollar is up this morning on the above news, with both the Yen and the Euro lower. Despite the rise in the dollar, oil is moving higher, back up to $115. This is supporting a big bounce in all of the energy and commodity stocks and weighing on tech.

Money is also flowing out of bonds, leading to lower prices and higher yields in fixed income. The 10-year yield is spiking 11 basis points to 3.86%.