The US economy smashed expectations for job growth Friday, reassuring investors concerned about a possible recession and setting off a buying frenzy on Wall Street.
A day after fears about China's slowing economy sent shock waves through global markets, the Dow Jones industrial average shot up more than 740 points, closing the day up 3.29 per cent.
The surge in hiring and wage growth, with 312,000 new jobs in December, capped off the best year of job gains since 2015, and tamped down fears of an imminent slowdown of the economy.
Businesses typically don't add workers unless they believe they will need them for months to come, and the Federal Reserve offered further encouragement for investors sizing up the economic outlook for 2019.
The economy has "good momentum," Federal Reserve Chair Jerome Powell told the annual meeting of the American Economic Association, noting that the central bank will be "patient" about raising interest rates this year.
Despite a brutal start to trading for the year, driven by political uncertainty over the federal government shutdown and the lingering trade dispute with China, the conclusion that most economists are coming to is that US growth this year will be slower than 2018, but a recession is unlikely.
"2018 was a very strong economy. . . . I would say we're moving from strong to something more like solid," Mary Daly, president of the San Francisco Fed, said in an interview. "It's still open in my mind about whether we move from solid to moderate."
The US economy has a good chance of remaining healthy even as China and Europe soften, and markets and politics remain volatile, many economists say. Consumers power the US economy and the expectation is that Americans will continue to open their wallets and spend as long as jobs are plentiful and wages keep rising.
"I would say the odds of a recession over the next year have to be pretty close to zero," Kevin Hassett, President Donald Trump's chief economist, said in an interview. "We're carrying a lot of momentum into next year. . . . "We've built new factories and now it's time to turn them on."
Hassett said he's confident the weakness in China and Europe won't spill over into the United States.
Apple this week slashed its sales forecasts for the first time in 15 years, blaming "economic deterioration" in China.
But by Hassett's calculation only 1.7 per cent of US corporate profits come from China, reducing its effect on the U.S. economy, and the problems he sees in China and Europe are specific to those countries.
"There are special circumstances that explain the European and Chinese growth slowdown. In Europe, it's Brexit and Italy, and in China it's a credit bubble, general weakness and the effect of tariffs," Hassett said. "There isn't an unexplained malady we're worried we'll catch, too."
Fed leaders pushed back against the prevailing view among some business leaders and investors that the US economy was overdue for a recession after a nearly decade-long expansion, saying that was not correct.
"Expansions don't die of old age. I like to say they get murdered," Ben Bernanke, the former Fed chair and president of the American Economic Association, told the meeting.
He was emphatic that he did not see any threats lurking on the horizon, and that there's an "excellent chance" the economy continues to grow through July, breaking the record for the longest US expansion in history.
But he agrees growth will be lower this year. "It's likely the economy will grow more slowly in 2019 than 2018. This is not something that is news. We've anticipated this for a long time."
In December, markets sold off sharply after the Fed predicted two interest rate increases for 2019. Wall Street traders and Trump think the Fed shouldn't do any this year, largely because of fears that the slowdown overseas would hurt the United States.
Those worries were heightened this week after Apple slashed its earnings expectations for the first time in more than 15 years and a key U.S. manufacturing gauge, the ISM Manufacturing Index, fell by the largest amount in years.
But on Friday, the Labor Department reported that manufacturing added 32,000 positions in December, capping off the best year for manufacturing job gains since 1997, and that workers in that sector are clocking more overtime, a sign that factories continue to churn.
"We're seeing two different economic realities right now," said Martha Gimbel, research director for the Hiring Lab at Indeed, an employment website. "One is the stock market, which is going through something, and the other is the labor market, which has been chugging along."
Apple blamed China's decelerating economy and Trump's trade war for its weaker sales. Investors worry that other companies will also feel the pinch. But so far, the employment data remain strong and inflation remains mild despite concerns the tariffs would cause prices to rise.
"Unemployment has been under 4 per cent for nine months now. We have inflation under control. I think that's a pretty good outcome, and we sure think it can continue," said Powell.
Despite rising global head winds, the US economy remains solid because it is relatively insulated from overseas turmoil.
Concerns remain that hiring could slow down later in 2019, but there are few, if any, alarm bells about jobs or wages as the new year kicks off.
"The American economy is booming based on today's reading of the employment situation, which should go a long way to reassuring nervous Nellies in financial markets," Chris Rupkey, chief financial economist at MUFG Union Bank, said in a note to investors.
Wage growth hit 3.2 per cent a year in December, the fastest pace in nearly a decade and a sign of increasing competition for workers. While inflation eats up some of those gains, wages are growing about a percent above the cost of living for the typical American, mainly because gas prices have stayed low.
While many cheered the strong hiring report, some analysts were quick to say that it's a lagging indicator that isn't necessarily a great predictor of where the economy is headed.
"While today's number is great to see, I'm not going to use it to influence my view of economic growth in 2019, which will be on a slowing trajectory," said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
The consensus view is that growth will slow to about 2.5 per cent, down from about 3 per cent last year, but some forecasters like Morgan Stanley have cut their prediction to 1.7 per cent, a far more dramatic decline.
Much will depend on whether consumers remain confident or whether they follow Wall Street's lead and take a gloomier view.
The White House is about to release its latest projections and the expectation is Trump will again forecast 3 per cent growth.
Trump himself dismissed concerns about Apple's slashed earnings report, arguing that US companies are strong enough to get through any hiccups and that hurting the Chinese economy is necessary to get more trade concessions from the nation.
"They're going to be fine. Apple is a great company. But I have to worry about our country," Trump said Friday. "Apple makes their product in China."