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February Employment Update: Expansion On Track; S&P Fairly Valued

Chris Joseph, CFA profile picture
Chris Joseph, CFA


  • I updated my economic composite following the release of the February employment report.
  • The gain in nonfarm payroll of 313,000 was well ahead of the consensus forecast of 205,000.
  • Temp employment was up nearly 1% month to month and up 4.2% year over year. Strong increases in temps continue to provide support to the economic composite's growth outlook.
  • The P/E composite suggests fair value on the S&P.
  • Next month marks the model’s eighth year of consistently predicting economic expansion in the U.S.

Economic Composite

I updated my economic composite to reflect the release of the U.S. Labor Department's employment report on March 9. The report showed a rise in nonfarm employment of 313,000 in February. Forecasters were looking for a gain of 205,000, according to Bloomberg News.

Preliminary numbers for the previous two months were revised slightly upward. For the trailing six months, nonfarm employment has grown on average a robust 205,000 per month.

Temp employment in February added 27,000 (+0.9%) from the previous month and climbed 4.2% year over year. The preliminary figures for January and December were essentially unchanged.

For the last six months, temp employment rose on average a solid 10,000 per monthly, for an average increase of 4%. It's an encouraging sign that employers are seeing enough strength in their business to hire temps at this pace.

The February increase in temps was ahead of my forecast, providing more confidence in my estimates. I’m leaving my forecasts for the rest of the year unchanged. I continue to look for modest monthly sequential increases in the BLS temps data series, equating to low to mid single-digit annual growth rates. As a result, the composite continues to signal economic growth for the next 12 to 18 months. The composite is likely to range from 1.5 to 2.5 through this year, well into positive territory. I do not expect the economy to tip into recession.

Next month will mark eight years that the model has been continuously forecasting U.S. economic expansion. The inflection point came in March, 2010, when the composite score remained above zero for three months. This was about nine months after the NBER's classification of the end of the Great Recession and a year after the S&P hit its low of 667. In that time, the S&P has averaged an annual return of about 11.5%.

This article was written by

Chris Joseph, CFA profile picture
Chartwell Research is published by Chris Joseph, CFA. Chris spent over seven years managing the private market investments in one of the 20 largest university endowments in the U.S. He also worked for many years in the equity research departments of leading investment banks, including five years following companies in the staffing industry. For over 15 years, Chris has been analyzing government and private sources of employment data, which form the basis for the Chartwell economic model.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Goldilocks still alive and kicking. Appears that the stories of the recent correction have abated for now...trade wars, inflation, higher interest rates. At least we learned what the most important number to be watching is...wage growth. We head to the January 26 high. Nice profitable day.
Block buster employment numbers and the market responded. I am absolutely fully invested to take full advantage of the continuing positive economy.
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