The Truth About Today’s Jobs Report

The September unemployment report came issuing this morning.

It was a curate’s egg — partly negative and partly positive.

A Dow Jones survey of economists had put the number at 145,000 new jobs.

What was the actual figure?

Merely 136,000 — a “miss” in the technical vernacular of the trade.

The private sector took on 114,000 jobs — 16,000 short of the projected 130,000.

September wage growth was also the weakest since July 2018.

But here is the good news…

The Bright Side

The number of August jobs was revised upward. The original report had 130,000 new August jobs.

The revised report credits August with 168,000 jobs — a 38,000 skyward adjustment.

The number of demoralized and underemployed workers also declined to 19-year lows… or so we are told.

What is more, the (official) unemployment rate slid to 3.5%. That is a 50-year low.

The president was quick to accept credit… and give his political enemies a good razzing:

Breaking News: Unemployment Rate, at 3.5%, drops to a 50 YEAR LOW. Wow America, lets impeach your President (even though he did nothing wrong!).

Wall Street was chewing its fingernails in fretful anticipation of this morning’s report.

It has been a grim week for the stock market. A savage jobs report would likely mean another trouncing.

So… how did the stock market take this morning’s report?

A “Goldilocks Number”

The market — or the computer algorithms that run it — saw the glass half full. And stocks were up and away on the news.

They were even higher and farther away by the closing whistle.

The Dow Jones ended the day 372 points to the good. The S&P gained 41 points today, the Nasdaq 110.

Now the all-important question:

Will today’s unemployment rate nudge the Federal Reserve one way or the other?

It meets at the end of this month.

“This sounds like a Goldilocks number to me,” says Steve Grasso, director of institutional sales at Stuart Frankel. He continued:

“It still gives the Fed some room for cover to cut rates. This is as close to a not-too-hot, not-too-cold greeting for the market.”

Yesterday the market was giving 92.5% odds for a rate cut this month. But today… those odds have slipped to 79.6%.

This is far greater than last week’s 49.2%. But 92.5% it is not.

We will have our answer Oct. 30.

But let not your heart be troubled…

All We Need Is “Appropriate Monetary Policy”

We have it on high authority — the No. 2 man at the Federal Reserve — that the central bank can keep the show running in perpetuity.

Federal Reserve Vice Chairman Richard Clarida informs us the odds of recession remain low “with appropriate monetary policy.”

“With appropriate monetary policy.”

To this fellow and his kind, the economy is a vast Industrial Age machine.

With the proper tinkering, with learned technicians attending it, this mechanical creature can run permanently at full throb.

Is it reluctant, hesitant or listless? Then in goes the high-test fuel.

Is it in danger of overheating? Then pump in coolant.

Does it require lubricant? Plenty of oil is on hand.

Does it gurgle, sputter or give off strange clanks?

Adjust this dial. Twist that knob. Pull that lever. Tighten this screw.

It will promptly return to the pink of health.

And consult the manual if you have any questions. There you will find your answers.

In this clockwork world the central banker lives. But that world has no existence.

“A Willful, Capricious, Chaotic and Unpredictable Delirium”

The real economy is no machine.

It is a willful, capricious, chaotic and unpredictable delirium. It is as elusive as quicksilver and slippery as eels.

It will not be so easily harnessed or corralled. Nor will it be told off what to do.

As well try to herd wildcats.

Why — may we ask — do 12 human blanks on the Federal Reserve’s Open Market Committee think they can boss a $20 trillion economy?

And why should they determine interest rates at all? Why can’t the marketplace decide its own?

What kings are these to decide?

The fatal conceit, Hayek called it.

But when all comes to all… the Federal Reserve does not wield nearly the power with which it is credited.

A Helpless Giant

It may place its clumsy thumbs on the scales. It may deal from a dishonest card deck… and throw loaded dice upon the gaming table…

It may ooh and aah the stock market with its false fireworks.

But the real economy of men and materials are not so easily conned. With knowing eyes it sees through the shim-sham.

And it will not truckle under to the Federal Reserve’s authority.

Turn your eyes to the past 10 years of monetary policy.

It has produced a gorgeous “everything” bubble.

Yet not one year of the 10 has turned in 3% economic growth.

In contrast, all other expansions since 1980 averaged — averaged — 3.21% annual growth.

No, the Federal Reserve is a helpless giant, a 10-thumbed doofus.

“The Only Power the Fed Has Is to Incentivize Profiteering via Stock Buybacks and Speculations of the Super-wealthy”

As explained our own Charles Hugh Smith in last Saturday’s reckoning:

What few seem to grasp is the Fed is powerless over what actually matters in a healthy economy:

1. The Fed is powerless to create productive, profitable ventures for capital to invest in. Productivity has gone nowhere during the Fed’s reign, while speculative profits leveraged by the Fed’s free money for financiers have soared.

2. The Fed is powerless to raise wages. Despite ginned-up claims that wages are finally rising 3% a year after a decade of stagnation, wages are still losing purchasing power once real-world inflation is factored in.

3. The Fed cannot force creditworthy households and enterprises to borrow more money, nor can they stop banks from lending to the only people who want to borrow more money, those who are credit risks, i.e., borrowers who will default at the first spot of bother…

Those who get the Fed’s nearly free money can use it to buy productive assets and pursue speculations such as stock buybacks, while everyone else who didn’t get a single dollar of the Fed’s trillions experiences a loss of purchasing power as the Fed’s new money expands the money supply without actually expanding the real economy.

The only power the Fed has is to incentivize profiteering via stock buybacks and speculations of the super-wealthy…

One day the world may absorb this lesson.

Alas… that day is far too distant.


Brian Maher
Managing editor, The Daily Reckoning

The Daily Reckoning