Jobs And Earnings Rising; Other Data Not So Strong

Rates rose a little Friday morning, mortgages still in reach of 3.50 percent, in reaction to news which should have blown us into orbit. As reported, the U.S. has created more than a half-million jobs in 60 days — 292,000 in June, 255,000 in July.

Key Takeaways

If the Fed had no reason to be concerned about the outside world, these job figures and inflation approaching 2 percent would have the Fed in continuous rate hikes.
But the Fed has every reason to worry about the world.

Rates rose a little Friday morning, mortgages still in reach of 3.50 percent, in reaction to news which should have blown us into orbit.

As reported, the U.S. has created more than a half-million jobs in 60 days — 292,000 in June, 255,000 in July. Average hourly earnings are rising gently, now a little above 2.5 percent annually, not adjusted for inflation.

Other data are not so strong: The grim GDP (gross domestic product) figures going back to 2015, the twin ISM (Institute of Supply Management) indices for July both softer than forecast at 52.6 manufacturing and 55.5 for services, and “involuntary part time” actually rising, together with no improvement in employment among men aged 25-54.

If the Fed had no reason to be concerned about the outside world, these job figures and inflation approaching 2 percent would have the Fed in continuous rate hikes.

But the Fed has every reason to worry about the world. Japan announced new stimulus, although as expected it is too small to be effective. On the bright side, also too small to destabilize markets.

The U.K. seems surprised by the large size of its stimulus, trying to intercept future effects of Brexit. The Bank of England cut its cost of money to the lowest ever (long time, there), 0.25 percent, and UK 10-year “gilts” fell in yield to 0.75 percent, one-half the yield on ours.

Europe faces imminent bank implosions, or rescues creating as much euro-zone political trouble as an implosion. Sovereign debt in the south (including France) continues to grow at two or three times the pace of GDP.

China has gone silent again after credible reports of a split between Xi and his number two — both agreeing that reform and shrinkage of state-owned industries and debt are necessary, but clearly disagreeing about whose SOE (state-owned enterprise) constituents will be shrunk, and the debt engine is still running strong.

Separate reports confirm cash piling up in SOEs, as loans are force-fed but the SOEs have no worthwhile place to invest, and capital flight out of the country has been stopped.

You be the Fed. You want to tighten into that?

Fortunately, we have the black comedy of the U.S. election. I have not yet seen a poll asking business (or consumers) if the spectacle has created caution for spending, investment or hiring.

Presumably Clinton’s new lead relieves some Trump anxiety, but pre-Trump, Clinton has the worst approval numbers in the history of polling. Reassurance is going to be scarce clear through November and beyond.

If we get out of 2016 with bi-partisan rejection of extremism…way cool.

U.S. 10-year T-note in the last week.

U.S. 10-year T-note in the last week, rising on each packet of good economic news. Held down only by super-low rates overseas.

The Fed-predictive US 2-year T-note in the last week.

The Fed-predictive U.S. 2-year T-note in the last week, Friday’s report having obvious effect — but the chart’s exaggerated vertical scale magnifies a minor move.

China matters most because of its effects on its trading partners.

…and in turn their effect on China.

…and in turn their effect on China. This pair of charts, above and below, shows the world’s vulnerability to trade war, and to currency destabilization which could be caused by any of several policy errors, including an over-tight Fed.

The spooky-accurate Atlanta tracker has begun to forecast Q3 GDP

The spooky-accurate Atlanta tracker has begun to forecast Q3 GDP, and its early call is so strong that it’s hard to find on the chart. See top right, about 3.8 percent annualized. Huh?