The Labor Department said the U.S. economy created 255,000 jobs last month, well above forecasts that ranged from around 170,000 to 180,000. The readings for May (+13,000) and June (+5,000) were also revised higher.
Job gains were fairly widespread, with 70,000 added in professional services, 43,000 in healthcare, 45,000 in leisure and hospitality, and 38,000 in government. Mining was the lingering weak spot at down-6,000. But modest job growth returned in construction (+14,000) and manufacturing (+9,000).
As for the unemployment rate, it held steady at 4.9%. That was slightly worse than forecast, but participation in the labor force ticked up. Average hourly earnings rose 0.3%, slightly better than expected. That left wage growth at 2.6% year-over-year, unchanged from June.
No doubt these are stronger-than-expected numbers. But how do they square with the slowdown in GDP, the longest negative stretch in corporate earnings since the Great Recession, the decline in business investment, and the nascent weakening in key sectors like construction and autos? Not very well.
|The stock market jumped, the dollar rose, and interest rates climbed.|
Throw in the tightening of lending standards I discussed earlier this week, and there’s still plenty of reason to expect job growth to decelerate in this late-cycle environment. That clearly didn’t happen in July, though. So the stock market jumped, the dollar rose, and interest rates climbed. It’s worth pointing out that short-term rates rose more than long-term ones. That flattened the yield curve further, a consistent trend we’ve seen for more than a year.
Interestingly enough, the strongest job reading of the dot-com-driven cycle came in March 2000 (+468,000) – right when the markets topped out. The best readings of the housing bubble cycle came in mid-2006 through early 2007 (+mid-200,000s to low-300,000s). That was right around when our markets topped out in that expansion.
Nobody knows for sure if that same process is about to play out again. But decades of market and economic history suggest it would be very, very abnormal to see a new bull market and a new expansion at this point in the latest cycle. So keep a wary eye on the data and on how markets digest it in the days and weeks ahead.
What do you think? Is the economy shifting back into higher gear? Or are these figures about as good as they’re going to get? Is the “real” trend in employment the weakening we saw in the spring … or the strengthening we’re apparently seeing in the summer? How should you adjust your investing stance in light of these figures, if at all? Definitely take some time to weigh in when you get a chance.
Until next time,
Where are markets headed, and how will tighter bank lending standards impact things? That’s what you were discussing in the past few days.
Before I get to those comments, I just wanted to clear up what my charts on Tuesday showed. The bars show the net percentage of banks that are tightening or loosening standards in a given quarter.
Bars extending below the zero line show that more banks are loosening standards than tightening. Bars extending above the zero line show the opposite. The higher or lower the bar, the greater the percentage of banks doing the tightening/loosening. I hope that clears things up.
Now, let’s move on to the comments, the first of which is from Reader Timothy. He weighed in on the market outlook, saying: “The fact that many are expecting a ‘correction’ in the market is, indeed, a bullish sign from a contrarian point of view.
“However, my own analysis has produced this: 1) The ‘January effect’ has already pointed to the conclusion that the market will swoon at some point during 2016 2) According to ‘Dow theory,’ the Transports have been on a downward trajectory, again indicating a coming overall market correction, and 3) The Bollinger bands on the VIX chart have just really compressed, almost a carbon copy of last year’s action just prior to the 1,000-point sell-off in one day, and subsequent selling during the latter part of August 2015.”
Reader This World added: “If you keep trying to raise stock prices by reducing the number of employees and moving jobs and capital to other countries, your customer base … the American middle-class worker … won’t be able to afford your products.
“So until and unless Wall Street starts to act as if it gets that ‘We are all in this together,’ and starts acting in the interest of the public, I suggest and believe the equities market will collapse altogether. The fruit is rotting off the trees from the inside out.”
On the subject of lending standards, Reader Steven P. said: “Great insights as always. The charts and data are compelling. The credit/debt side of the markets are the distant early warning of what’s coming on the equity side. It ain’t pretty! In my opinion, we’ll be fortunate if a recession is the only consequence of this latest ‘everything binge’.”
And Reader Henry A. added: “Easy money destroys innovation, and promotes speculation and excessive, non-productive debt, both business and personal, that will not be paid off. It’s the perfect formula for the recession we are likely already in.”
Thanks for sharing. I believe there are enough signs all pointing in the same direction – that the economic expansion of 2009-2015 is starting to falter – even if that wasn’t apparent in today’s jobs report.
Agree? Disagree? Let me know over the weekend in the comment section. Or if you want to tell me to my face why I’m on track (or crazy!), join me at The MoneyShow Toronto. It will run September 16-17 at the Metro Toronto Convention Centre.
I’m participating in a panel discussion, delivering a solo presentation, and taking as many questions as I can from investors like you. You can register for free by clicking here or calling 800-970-4355 and mentioning priority code “041484.”
I wrote last week about the risk that ultra-low interest rates pose to pension plans. But did you know they also hurt life insurers by making it much more difficult to fund long-term liabilities with investments like bonds? MetLife (MET) provided evidence of that when it said second-quarter profit plunged 90% to $110 million.
The largest U.S. life insurer added that it would fire workers and take other steps to cut costs by $1 billion. That is yet another example of how QE not only doesn’t help, but actually hurts.
Things haven’t gone well for Donald Trump in the last several days, and multiple polls are now showing Hillary Clinton pulling ahead in the presidential race. One from the Wall Street Journal/NBC News shows Hillary with a 9-point lead.
Have at least $100 million to blow? Then here are just a few of the exotic homes you could buy here in the U.S. and abroad, according to Bloomberg. I don’t know if you’d call it a sign of an impending real estate bust, but Christie’s says the number of $100-million-plus listings jumped to 28 from 19 this year.
The New York Times, for its part, just published this story about several struggling or failed housing projects in the Greater New York area. Some have had issues with financing or permits, but brokers and others quoted in the piece say the softening market is at least partially to blame.
So what do you think? Is the housing market taking a breather, led by the vastly oversupplied apartment sector I’ve been discussing recently? Or will it hold up just fine? What do you think about Trump’s recent stumbles, or the loss of jobs in the insurance industry – a direct consequence of global QE? Hit up the comment section and let me hear about it.
Until next time,