There have been various entities putting pressure on the Fed to back off on its rate increases in recent months as the stock market has come under pressure. The most vocal critic has been President Trump himself. The president even tweeted on Christmas Eve, “The only problem our economy has is the Fed.”

The Fed has stated that they intend to take a wait and see approach going forward. They want to sort through different economic indicators to see whether they are improving or declining. If the committee is looking at the manufacturing index and the employment numbers from this past week, the picture sure didn’t get any clearer.

The ISM Manufacturing Index was released on Thursday, and it showed that manufacturing activity dropped considerably in December. The reading came in at 54.1 and that was down considerably from the 59.3 reading in November. The index was at 61.3 in August.

The good news is that the index remained above 50 because readings above 50 indicate that the economy is growing while readings below 50 indicate that the economy is contracting. So from that vantage point, a reading of 54.1 isn’t bad. The problem is that the new orders portion of the index dropped sharply, from 62.1 to 51.1. That is the lowest new order reading since August 2016. That particular month was also the last time the overall index had a reading below 50.

What all of this suggests to me is that various economic factors are starting to take a toll on the manufacturing segment of the economy—the trade war with China, rising interest rates.

Jump ahead to Friday when the December employment report was released and we get a totally different picture of how the economy is doing. The report showed that there were 312,000 jobs added in December and that is the biggest jump in nonfarm payrolls since February. It is also only the second month with greater than 300K jobs added in the last two years.

The unemployment rate did tick up to 3.9% in December and that is the highest reading since July. For the most part, this was the only negative from the employment report.

Average hourly earnings also increased in December, up 0.4% for the month. Adding that figure in with the last 11 months meant an increase in earnings of 3.2% during 2018. In addition to the increase in wages, the average workweek increased In December to 34.5 hours and the labor force participation rate increased to 63.1%.

All of the positives from the employment report certainly suggest that the economy is fine and the Fed hasn’t raised rates too fast or too much.

This might not be what President Trump wants to hear. Of course, he is happy with the job growth, but he’s probably not happy that the Fed seems to be on the right path.

In addition to the economic reports, Fed Chairman Powell made an appearance at the American Economic Association’s annual meeting on Friday. At the meeting Chairman Powell stated, “We will be prepared to adjust policy quickly and flexibly and to use all of our tools to support the economy should that be appropriate to keep the expansion on track,” he added, “there is no pre-set path for policy.”

It seems to me that the economy is still expanding, yet the stock market is very jittery. Is it possible to have a bearish phase in the stock market without actually entering a recession? My answer to that question is yes, it happened in 2000-2002. The stock market dropped sharply and the only two quarters where we saw GDP declines were in the first and third quarters of 2001. By definition, a recession occurs when GDP declines in two or more consecutive quarters.

By definition, we weren’t in a recession in the first few years of this century and yet the S&P declined by almost 50% from September 2000 through October 2002. Is that what we are setting up for again? The earnings warning from Apple earlier in the week certainly reminded me of the bear market in 2000-200