This past Friday, June 3rd, 2016, The Bureau of Labor Statistics released
their most recent report regarding new employment data and nonfarm payroll
employment which indicates that during May of 2016, it was the smallest increase
seen in 28 months.
During May of 2016, there were 144,592,000 payroll jobs within the US, which
was up by 1.6 percent, or equivalent to 2.3 million jobs, from May of 2015
(These are all not-seasonally-adjusted numbers).
That represents the smallest year-over-year increase that has been reported
since February of 2014, at which time payroll jobs increased by 1.57 percent.
The largest year-over-year increase, in recent years, was reported during July
of 2015, when it was up by 2.18 percent:
Since July of 2015, the general trend in growth has been down. This 1.6 percent
remains well below where growth was during most of the 1990's.
I am not fond of using the seasonally adjusted numbers, since they add an
additional layer of 'needless manipulation'. I do prefer to compare job growth,
from the same time of year, over several years.
When I do this, I find that the job growth from April to May of 2016, was
the lowest April-May growth total since 2009:
From April to May of 2016, there were 651,000 new jobs added, which is a significant
drop from that same period of time, last year when 947,000 jobs had been added.
Over the past decade, this current year of 2016, in this measure, beats out
only 2008 and 2009,both of which were years of 'economic decline'. Therefore,
May of 2016 was the weakest May on record, for job growth, in eight years.
The Secretary of Labor, Tom Perez attempted
to blame everything on the Verizon strike. That is a nice "spin", however,
the strike does not explain the obvious 'decline' in the year-over-year numbers!
The strike might explain why the May numbers dropped off as much as they
did, however, it cannot explain the 'trend'. It is a bit of a stretch to
blame this drop from April-May of 2015 to April-May of 2016 on the Verizon
strike.
Mr. Perez, however, attempted some other, even less convincing, claims as
well, stating that the U.S.'s insufficient mandates on paid family leave means
that fewer women are entering the work force, and therefore pushing down the
jobs totals. Is this IMPORTANT? The answer is NO! These
bad numbers merely reflect our current poor economic situation, today!
In any case, the overall trend should not be a big surprise, as it has always
has been weak. It has been dependent on the FED and their low interest rates.
In recent quarters, the FED has finally been backed into a corner and has
become hawkish. Realizing that more rate cuts are unlikely to occur any
time soon, the economy is not receiving the usual FED-manufactured stimulus
which investors and companies have both become accustomed to. With the FED
talking about the need to raise 'rates', who can be surprised that the "recovery" is
nonexistent?
The financial news, of the past few weeks, had its cadre of regional FED Presidents
attempting to sway markets into believing that the Central Bank was sure to
'hike' interest rates during this current month of June 2016.
The jobs report sent 'shock waves' throughout the entire financial system.
The report printed a jobs number of just 38,000 new employees, which is the
lowest single month since the height of the "Great Recession".
What is even more ludicrous than this, is the fact that the unemployment rate
fell to 4.7 percent seeing as 664,000 workers are no longer being counted and
included, by the government, within the labor force.
The FED relies heavily on these 'manipulated' government jobs numbers, the
idea of "data dependency" being used to determine when to 'hike' or 'drop'
interest rates shows the incompetency of a body that supposedly
employs hundreds of economists who are dedicated to discover the true state
of the economy and of its' economic data. This in turn, should provide Americans
with the reality that not only does the Central Bank have any idea what they
are doing, but, more often than not their policy decisions are based on 'incorrect'
and 'outdated' models which have only served to make matters worse, since the "Credit
Crisis of 2008".
The majority of jobs created were either part-time or low-wage service sector
oriented. You can bank on the fact that the FED is now more likely to lower
'rates' than they are to raise them, going forward!
Today, it is both unlikely and irrational for the FED to raise interest rates
either now or in the near future, despite the Central Banks' recent "moral
suasion" on mass media, of a potential rate 'hike' occurring as early as this
month or possibly next month. The FED continues to create policies in an attempt
to protect the economy and stock markets through November of 2016 so as to "spin" the
election in favor of Hillary Clinton. This is due to the uncertainty from the
presumptive Republican candidate, Donald Trump, who may force the Central Bank
into ending its' mission to fuel 'stock and housing bubbles'. I, myself, as
well as many economists, are seeing the 'Summer of 2016' as a dangerous period
of time where and when a financial, economic, or monetary 'collapse' could
take place from any number of 'flashpoints'. The actions that are now taking
place, in the equity markets, are an indication that these
'fears' may very well be arriving much sooner than most analysts expect.
The economy is still performing 'significantly' below its' potential:
The problem is that the FED, including other Central Banks, have waited too
long and gone too far in their 'zero interest rate' policies and 'quantitative
easing' programs. With all of this nonsensical talk coming from the FED, the
debt default levels, especially for credit default swaps on the 10-year Treasury
are NOW at their highest level since the FED raised rates by
a quarter of a point, back in December of 2015.
The probability of a U.S. default of its' debt has hit its' highest point
since the FED has hiked rates in December of 2015. This is indicated by the
recent dynamics in credit-default swap (CDS) agreements. The expectations that
the Central Bank may raise borrowing costs still further, in the coming months,
will set off this 'time bomb'. Since the FED has turned increasingly hawkish
of their policy outlook since late April 2016, market volatility has increased,
with stocks swinging between gains and losses and U.S. Treasuries sliding along
slide with the dollar. "Systemic risks" stemming from the CDS transactions
are rising amidst the unfavorable global financial environment. This is not
only true in the U.S., but its' counterparts are also subject to greater turmoil
in the coming months, as possible FED hikes, "Brexit" concerns, U.S. elections
and faltering global growth are all interconnected factors thereby contributing
to the recent spikes in U.S. CDS spreads.
If things follow the FED script, I imagine that next months' payrolls will
exceed 'tapered down' expectations and consequently, there will be an upward
revision of Mays' numbers. Will this continue sending the market into exuberance? NO! However,
the FED officials will then restart the rate 'hike' talks with just enough
offsetting uncertainties to mislead everyone while trying to keep the market
'bubble' from 'bursting'.
The financial system is like a giant game of poker with all the major player
holding a seven and two off suite (worst hand you can have), yet they are all-in
with their chips (money & policies) trying to bluff their way out of this
mess.
Things are going to be very crazy over the next 6-12 months and beyond, but
until the US large cap stocks breakdown and start a bear market expect tough
trading and investing.
