On the first Friday every month: payroll roulette. No data is more important to the Fed and interest rates because jobs and incomes are so central to inflation prospects. But no report is so wildly, comically inaccurate.
Today’s factoid: January’s payroll gain was only about half the upside guesses, 113,000. The miserable December figure, 74,000 jobs, which most expected would be revised up, was indeed — by 1,000.
Everyone wonders at the impact of weather, and the dead of winter is not known for big economic movement in any direction. The agencies collecting and reporting data do their best to adjust for seasons, but how do we adjust for possibly anomalous seasons, in the thinnest activity of each year?
One painful stat has been the number of Americans working “involuntary part time” — those who would take a full-time job if they could find one. If you include that group — plus discouraged and “marginally attached” workers who aren’t looking for a job at the moment — there were 7.8 million people out of work in December. The overall “U-6” unemployment rate was 13 percent.
Today’s report, straight-faced, would have us believe that 514,000 of those people found full-time jobs in January. We also supposedly added 48,000 net construction jobs in January. This January?
Pros look to trends spanning months, correlated to other data. The twin Institute for Supply Management reports were iffy but not bad, granted some Kentucky windage for weather. Manufacturing in January slid to 51.3 from 56.5, and the service sector crept up to 53.9 from 53.
Hourly wages continued to poop along at a 1.9 percent annual pace — flat, minus inflation.
There is obviously no acceleration in these numbers, and maybe not even the mythic “self-sustaining recovery.”
But there is no recession risk in them at all. The Fed will continue to taper its “quantitative easing,” or QE — there’s growing evidence that it detected a QE leak that bubbled stocks.
The World Bank said this week that QE bubbled emerging-nation economies. But QE, in its last stage, did little for the U.S.
Until and unless the U.S. economy falters, or something big goes sour overseas, long-term rates have gone about as far down as they can. As smart Larry Fink (Blackrock) says, the stock market selloff is thus far just an ordinary correction.
The U.S. economy is not likely to falter, but overseas lies an unusually large group of vulnerabilities with one common thread: poor government. It’s always risky to analyze politics, particularly in an unprecedented economic situation. But the individual-nation misbehavior is a stark pattern.
Way too many places that know better will not or cannot act accordingly. Bill Gross of Pimco, who has as much information as anyone, acknowledged China’s opacity.
Yet, we all know that its excessive internal investment exports both deflation and unemployment, and that it must remake its political economy at the sacrifice of the party and state-owned interests. Every road available leads to a slower economy there, which means pick-your-poison out here: status quo pain, or slowdown pain.
Europe is under the control of Germany. Things are good in Germany, which leads its people to think, not without reason, if the rest would behave like Germans all would be well.
After three years of grumbling, the German Constitutional Court has acknowledged that bond buying by the European Central Bank is illegal under German law. But the court said it can’t do anything about it. Does that open the door for QE by the ECB, probably a damned good idea four years overdue?
Nobody knows. If the ECB does embark on QE, expect interest rates and stocks here to rocket, no matter what the U.S. economy does.
Germany, France and the U.S. are in a weird race for the gold medal of inert government.
Germany leads. Angela Merkel is invisible. To her, re-election is like adopting a pet of some kind that she can leave outdoors.
France is set up for a strong president and has its weakest ever, but has a very able class of civil servants moderating the damage.
The U.S. government was designed to never do anything, all checks and balances, and so we are better accustomed than anyone to moving along decapitated.
How all of this mismanagement interacts is beyond analysis, but we must look overseas as never before.
Just watch the ballet and hope the ballerina doesn’t get tossed into the fourth row.
10-year Treasury yields.
In times of uncertain economics, rely on “technicals.” Every bond trader on the planet is staring at that 2.5 percent notch last Halloween, between two 3 percent tops. Breach either threshold and all hell breaks loose.
Lou Barnes is a mortgage broker based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.
