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Stronger U.S. economy may strain to top expectations

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Posted: Thursday, March 15, 2012 3:07 pm

The U.S. economy has been outrunning everyone’s expectations.

Factory output has surprisingly surged. Housing, left for dead, is inching back. Most crucially, companies are hiring faster than many envisioned.

Funny thing about expectations, though: Each time you exceed them, it gets harder to do so next time. On Friday, economists expect the government to report a 200,000-plus job gain for a third straight month.

The previous two months, job growth topped expectations, and unemployment sank from 8.7 percent to 8.3 percent. Consumer confidence has since risen. So have President Barack Obama’s approval ratings.

This time? Another strong jobs report would be a welcome sign that the economy is further strengthening. But unless it exceeds expectations, it may not ignite a celebration.

“There’s a new threshold for what’s seen as a good report,” said Nariman Behravesh, chief economist at IHS Global Insight. “Our expectations are higher.”

That’s why the Obama administration hopes to dispel any assumption that the job market is destined to keep improving at the same pace before the November election. Last month, when a burst of hiring was reported for January — 243,000 net jobs — Obama cheered. Yet he also cautioned, “These numbers will go up and down in the coming months.”

An Associated Press survey of nearly two dozen economists late last month found that many envision lower unemployment in the coming months than they did a few weeks earlier. A big reason is that they now expect stronger job creation.

Here’s how Friday’s jobs numbers for February could intersect with expectations:

Consumers

The healthier-than-expected job growth has brightened consumers’ view of the economy. A gauge of consumer confidence surged in February to its highest point in a year, far above where it stood in October before the jobs and economic news improved. A more confident consumer is more likely to keep spending and driving further economic growth.

For consumers, expectations “color the perspective of what is a good number and what is not,” McDonald said. When the job market’s gains surpass forecasts, news reports seize on the improvements and help lift consumer sentiment.

Still, Andrew Kohut, president of the Pew Research Center, cautions that consumers are still wary about the economy. Though most Americans now think the economy is recovering or will soon do so, about 40 percent still see the economy as “poor.” That figure hasn’t changed much in the past year.

Kohut thinks many consumers remain wary of the economic rebound, unsure if it will endure this time after previous false starts. The economy might have to consistently top expectations to solidify their confidence.

“Public confidence in the recovery is fragile,” he said. “I think they need to see more positive reports before their judgments about the future become markedly better.”

Politics

The public’s perception of the economy has improved in recent months. And Obama has benefited. But analysts warn that voters remain cautious. Any setback in the trend could reverse the brighter outlook. Previous improvements in public sentiment about the economy haven’t lasted.

In an Associated Press-GfK poll last month, 48 percent said they approved of how Obama was handling the economy, up 9 points from December. And 30 percent of Americans described the economy as “good” — a 15-point jump from December and the highest level since the AP-GfK poll first asked the question in 2009.

But Matt McDonald, a partner at Hamilton Strategies, a consulting firm, said the White House has prematurely celebrated positive economic news before. After some strong jobs figure emerged in the spring of 2010, Vice President Joe Biden began touting the “recovery summer.” The economy then sputtered.

More such missteps could erode the administration’s credibility on the economy, said McDonald, who worked in the White House under President George W. Bush in 2005.

“It would be a big risk for the White House to declare victory again,” McDonald said. “Instead of the boy who cried wolf, it would be the president who cried jobs.”

Investors

The stock market is likely to be the hardest to please. Investors expect steady economic growth and an improving job market, economists say. A result that merely confirms the trend isn’t likely to juice the markets.

“Strong numbers aren’t going to elicit the same kind reaction as they would have last year when it looked like the economy wasn’t growing at all,” said Brian Gendreau, market strategist at Cetera Financial Group. “Is an improving economy priced in already? I think so.”

Gendreau says it usually takes a big surprise in the jobs report — positive or negative — for the stock market to react significantly.

That’s what happened last month, when the government reported the January jobs numbers. Economists had estimated that employers added 155,000 jobs and that the unemployment rate rose. Instead, the job gain was a robust 243,000, and unemployment fell two-tenths of a percentage point.

The stock market soared in response. The Dow Jones industrial average surged more than 150 points and closed at its highest point in nearly four years.

But expectations have ratcheted up. Economists now predict a net gain of 210,000 jobs for February. It’s their first forecast above 200,000 in nearly two years.

Analysts’ expectations tend to catch up quickly with surprisingly positive economic news, said Kristjan Kasikov, a Citigroup analyst. The Citigroup Surprise Index tracks how much economic figures beat expectations. The index rose jumped October through January. It has since moderated, largely because expectations have grown.

“Positive data surprises lead very rapidly to adjustments in expectations,” Kasikov said. “The upside surprise momentum is fading a bit as expectations have adjusted.”

© 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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