A monthly jobs report just blew out expectations, and the US economy remains in a familiar position.
In September, 334,000 nonfarm payrolls were added to the labor market, nearly double the consensus estimate from economists surveyed by Bloomberg and the highest monthly addition since January.
The odds of a Fed rate hike, as measured by investor bets on the CME FedWatch Tool, ticked higher to a 30% chance the central bank boosts rates in November, up from a 18% chance last week.
And some Wall Street economists think Friday's report was one of the last signs of strength before the Fed's historically fast tightening cycle finally grabs hold of the elusive US consumer.
"Despite all the excitement around the September report, we don’t exclude the possibility of a negative payroll print before year-end," EY chief economist Greg Daco wrote in a research note on Friday.
Daco cited the United Auto Workers strike, "easing consumer spending," and more "cautious business activity" as factors that will slow labor demand in the months ahead. The firm boosted its odds for a recession in the next 12 months to 50% from 40%.
But the fact is, the current situation isn't nearly as bad as many thought it would be, and the fears of a slowdown are just projections for now. Just as they were in July when economists shunned the highest consumer confidence in two years. Or when March's decline in retail sales amid a banking crisis proved to be an aberration not a trend as consumers have kept spending. And spending.
While there have been hints of cooling, recent data still reflects a resilient economy that remains resilient, with flashes of cooling. The final reading of Gross Domestic Product for the second quarter showed the economy grew at a 2.1% pace. Expectations are for 4.9% growth in the current quarter, according to the Atlanta Fed's GDPNow Forecaster. And a recent revision from the government showed households' "excess savings" have been higher than previously thought and therefore could promote more consumer spending.
"A year ago there was a general consensus among economists and financial markets that a recession was in the offing," Wells Fargo senior economist Tim Quinlan wrote in a note on Thursday. "Those forecasts have largely been pared, put-off or canceled altogether. To some extent the rationale for these more sanguine assessments is a recognition of the uncanny staying power of the consumer."
Quinlan and Wells Fargo noted that their predicted slowdown in the labor market would be the catalyst that eventually slows down the consumer. But as of Friday's data that's not happening. And it's not just the monthly jobs report, either. The August Job Opening and Labor Turnover Survey, or JOLTS report, showed job openings hit their highest levels since May. Meanwhile jobless claims remain muted, which economists have highlighted reflects a low layoff environment.
The warning signs are still looming over the economy. Daco at EY calls them the "quadruple threat." High oil prices have hit consumer confidence. A strike from auto workers is ongoing, the resumption of student loan payments is expected to weigh on consumer wallets, and now a potential government shutdown is back in play.
Add in how elevated interest rates could weigh on both consumers and corporates, and the case for lagging impacts from monetary policy is still prevalent.
But even as the wall of worry builds once more, investors don't seem to be buying it as stocks rallied into the afternoon on Friday.
Josh Schafer is a reporter for Yahoo Finance.
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