|Dow||-170.50 to 17,737.37|
|S&P 500||-17.33 to 2,044.81|
|Nasdaq||-32.12 to 4,704.07|
|10-YR Yield||-.045 to 1.971%|
|Gold||+$13.10 to $1,221.60|
|Crude Oil||-$0.50 to $48.29|
Jobs Friday. It’s the one day of the month that’s guaranteed to get every investor’s blood pumping, and to generate significant market reactions.
So what did the figures for December from the Labor Department show?
==> The U.S. economy added another 252,000 jobs last month, topping the average forecast of 240,000. Not only that, but November’s reading was revised higher to 353,000 and October’s number was hiked to 261,000.
==> Another dose of good news: The full-year 2014 gain of 2.95 million jobs was the highest in any year going all the way back to 1999!
==> The unemployment rate sank again to a lower-than-expected 5.6 percent from 5.8 percent in November. That’s the best reading going all the way back to June 2008 — six and a half years ago.
|The unemployment rate continued to tumble in December, but wages fell.|
==> So what’s the fly in the ointment? Wages! Average hourly earnings actually FELL 0.2 percent in December, the worst result since 2006. November’s gains were cut in half to 0.2 percent, leaving wages up just 1.7 percent from a year ago.
When all was said and done, the stock market ended up giving back some of the hefty gains it spent racking up the previous two days. Gold and silver caught a bounce after early dollar strength faded, and interest rates drifted lower.
So where do we go from here? Well, the numbers clearly fly in the face of standard economic theory. You get unemployment at a six-year-plus low, you add the most jobs in any year since the late-1990s, and you should see wages rise — maybe substantially. But it just isn’t happening, raising an obvious question: “Why not?”
Could it be that companies can still ship jobs overseas to lower-wage countries, therefore limiting the bargaining power of domestic labor? Could it be that a steady influx of immigrants is competing for U.S. jobs, and willing to accept lower wages to perform them? Could it be that we’re creating more jobs, but only lower-paying ones in sectors like retail, food service, temporary employment, and the like?
Alternatively, could all the money that companies would otherwise reward their employees with be going towards rising health care expenses instead? Or could it be that there are so many Americans on the sidelines of the job market? That would allow companies to pay less because they know if they refuse raises or let workers go, they can find other people to fill those vacancies in a heartbeat.
I’ve read or heard all of those explanations and then some. My sense is that the strongest arguments pertain to competition from cheap labor overseas and rising costs for things like health care. That means there’s no quick, easy solution.
But if we continue to add hundreds of thousands of jobs every couple of months, the upward pressure on wages will build. That should help broaden out the economic recovery, and give Main Street a bigger share of the rewards that Wall Street has been reaping for the past few years!
|“The Federal Reserve’s 0 percent interest rate policy is looking more and more absurd with every strong jobs report.”|
As for the market impact, the Federal Reserve’s 0 percent interest-rate policy is looking more and more absurd with every strong jobs report. We’re adding more jobs now than at any time in a decade and a half. GDP just grew at the fastest rate in 11 years. Unemployment is at a six-year low. Consumer confidence is rising, stocks are at all-time records, and measures of financial stress (outside of energy) remain very low.
Sooooo the rationale for a 0 percent federal funds rate is what exactly?
But that’s what I think. How about you? Was this latest report strong in your book? Or is the wage figure a glaring weakness that shouldn’t be ignored? Why do you think wages aren’t rising faster, and is there anything Washington or the Fed can do to help? How are these latest figures coloring your approach to investing in stocks? Bonds? Currencies?
You know the drill: Hit up the Money and Markets website and share your thoughts with your fellow investors … and me!
|Our Readers Speak|
The French terrorism crisis continues to unfold. I asked whether something similar could happen here, and many of you agreed that it could. So what to do about it?
Reader David Y. said: “My suggestion for starters is get a concealed weapon permit, take a safe handling and concealed weapon course, practice, practice, and be more vigilant and situationally aware, just going about your business.”
Reader J. argued something similar, saying: “The events in France and Sydney are the perfect argument against gun control and an argument for concealed carry. The perpetrators know going in that their heinous acts can be carried out without any worry of armed resistance.”
But Reader H.C.B. noted that the terrorists in these attacks were armed to the teeth, and likely wouldn’t have had any trouble overpowering someone with a standard gun. His take:
“An armed citizen with a concealed handgun would be NO match for these kinds of attacks where you have multiple shooters armed with fully automatic rifles and wearing Kevlar bulletproof vests. Best thing you can do for yourself under those circumstances is ‘duck-out’ and live to fight another day on better terms. You cannot save anyone even if you saw it coming. Just protect yourself.”
As for the health-care debate, comments yesterday about how things work in other countries like Canada and Australia brought out some responses overnight.
Reader Ron W. said: “I read the comments about Canada from Reader Annabelle H. on the health care system and she paints a picture of the rosy side only of the Canadian system — the taxes there are outrageous.
“When I go to a restaurant or buy something at a store, it costs me about 30 percent more in taxes. That type of redistribution is not what America needs. I limit my visits there because of those high taxes on everything.”
But Reader Rhon R. countered that: “It is very simplistic to compare the tax paid on a meal to the total tax burden. You need to look at ALL taxes and in the USA, add in the health care insurance costs and most private school costs, since your public schools are often very substandard in poor neighborhoods. A more relevant statistic is that Canada spends roughly half as much per capita on health care and we live slightly longer.”
Thanks for your input everyone. I won’t claim to be a health-care economist. But like I said earlier this week, both the old system and the new system under Obamacare have failed to tame out-of-control growth in premiums, deductibles, co-pays, and the prices hospitals and doctors are charging. So something needs fixing for sure!
|Other Developments of the Day|
As of press time, French police had managed to track down the two chief terrorism suspects Cherif and Said Kouachi in a suburb northeast of Paris. They were surrounded at a printing business near the Charles De Gaulle airport, where they took one hostage and reportedly claimed they want to become martyrs.
Later, they reportedly charged out of the building and were gunned down in a hail of bullets. The hostage escaped unharmed.
Meanwhile, a separate terrorist, Amedy Coulibaly, stormed into a kosher supermarket in Paris and took several hostages. Police raided that store around the same time they got in the gunfight with the other two terrorists. Four people reportedly died, including Coulibaly. Another person of interest, Hayat Boumeddiene, was still being sought as of late Friday afternoon.
These incidents are fluid and fast-moving and could change by the time you read this. But they clearly underscore the threat posed by terrorist groups in Europe against “soft” targets.
Ahead of the European Central Bank’s important Jan. 22 meeting, we continue to get leaks about what they may consider doing. Thelatest from Bloomberg? That the ECB may launch a 500-billion euro ($591 billion) QE program targeting sovereign bonds — potentially those rated all the way from AAA down to BBB-.
Lots of retail earnings hit the tape in the past 24 hours, and they’re being closely scrutinized to see what impact plunging gasoline prices are having on consumer spending. It looks like news from department store chain Macy’s (M, Weiss Ratings: B+) was somewhat disappointing. The company reported a same-store sales gain of just 2.7 percent for the holiday season, and said that it would close 14 stores and revamp its marketing operations.
Bed Bath & Beyond (BBBY, Weiss Ratings: B+) also laid an egg, reporting weaker-than-expected quarterly sales of $2.94 billion (up just 2.7 percent year-over-year). Operating margins slumped to 12 percent from 14 percent, and same-store sales growth was lackluster.
Finally, Gap (GPS, Weiss Ratings: B) reported same-store sales growth of 3 percent for the November-December holiday period. Gap sales slumped 5 percent, but Old Navy sales rose a hefty 8 percent, helping offset the core brand weakness.
I’m a New England Patriots fan, and I’m hoping we stomp all over Baltimore tomorrow. But even I have to respect former Miami Dolphins fullback Rob Konrad.
The guy goes fishing by himself on a 36-foot boat off the coast of Florida and falls overboard somehow. The boat is set on autopilot so it just drives itself away and what does he do? Survives by swimming nine miles to shore!
Ready to comment on these or other stories of the day? Then head over to the website and get started!
Until next time,