The Truth Behind the Latest Jobs Report

The bounce from the mid-October lows continues. Last week the S&P500 added another 0.38% to push the index price even further into record high territory. Volume, of course, was low and certainly suggest that there was no in-rush of new investors or new money into the US stock markets. At the same time, volatility eased back almost to the lows reached during the mid-summer doldrums. At this point, volatility is about as low as it normally goes.

Technically, the S&P500 is back to an extremely overbought condition—both on the daily and the weekly charts. That said, there is no reason to make big bets against this market—the 50 day moving average never crossed below the 200 day at the October lows, and just as importantly, the 200 day moving average is still sloping upward….comfortably.

At the same time, the cross-market divergences are still pronounced. Oil and copper prices are plunging—-this does not happen when global growth is strong and conducive to rising corporate profits and stock prices. The high yield markets are still falling—this also does not happen when investors are bullish about profit outlooks for corporations. High yield credit is a risky asset, like stocks, and it normally moves in tandem with stocks.

US economic data continues to paint a picture of weakness. Last week, PMI manufacturing missed expectations. Productivity also missed……as did initial jobless claims. Factory orders fell far more than expected. International trade also missed. On the other hand ISM services and manufacturing numbers beat expectations.

And on the surface, the big number of the week—payrolls—also beat expectations. Instead of creating 230,000 new jobs as predicted, the US economy created about 320,000 which led to a lot of celebration among the US equity market cheerleaders claiming that not only were stocks fairly valued but that if these job gains continued, that the US stock markets could and should rise even further—so go ahead and buy more at the all-time highs.

But beneath the surface, the US jobs story is not nearly as rosy as it first appears. The household survey (the one used to establish the unemployment rate) showed that full-time jobs (you know the good ones that actually pay a decent salary or wage) actually declined by about 150,000. This means that the vast majority of the reported job gains came from part-time jobs, jobs that pay poorly and don’t come with benefits—but are counted as jobs nevertheless.

At the same time, the labor force participation rate did not increase. At 62.8%, it remains stuck at multi-decade lows.

Also, the workforce aged 16-24, in other words the newer entrants into the US work force, declined by almost 170,000. Instead, the over 55 category grew, meaning that folks who would normally begin to prepare for retirement are coming back into the workforce because they can’t afford to retire; this leaves fewer jobs for America’s youth, the future of the country.

So while the Wall Street pundits cried tears of joy when the payrolls number blew away expectations, what they didn’t tell you is that most of these new “jobs” were secretaries, waiters, store clerks, teacher aides, and bartenders.

The truth is clearly not so pretty.


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