Has the USA economy really passed the zenith of its recovery? Are we really at the beginning of a healthy cyclical downturn? Or are things happening which are perfectly normal but which simply don’t fit into our preconceived ideas of what has to happen next for the world to be a warm and fuzzy place?
The September Labor Department stats, the big headline of which is the Nonfarm Payroll, were truly shocking in that they undershot in all categories. The 201,000 consensus for the increase in the payroll missed massively at 142,000. Manufacturing Payrolls, expected to be unchanged, showed a decrease by 9,000 but average earnings which were supposed to rise by 0.2% remained unchanged instead. The humdinger on the disappointment front, to be sure, was the sharp downward revision of the August Payroll headline from 173,000 to 136,000.
What did look okay, however, was the overall unemployment rate which reported, despite the very disappointing job creation figures and the sharp revision, at a stable 5.1%. Go figure!
It has been argued that the lower job creation was a function of the decreasing slack in the labour market which might make sense but then how does one square the circle of hourly earnings stranded on a sandbank? There was also a report of a sharply declining participation rate at 62.4%. Have we, I wonder, taken to presenting ourselves with so much statistical minutiae that we have lost our ability to see the forest for trees?
One piece of research recently looked at the exploding cost of childcare and raised the question as to whether a falling participation rate might not perhaps be partially due to mothers withdrawing from the workforce in order to bring up the children themselves rather than finding themselves working all hours God gave them in order to raise the money to pay someone else to do it.
Keep schtum, FOMC…
I don’t know the answer to that one but what I do know is that we have, in the past ten days, faced a phalanx of senior Federal Reserve officials who have been telling us that the vote on monetary policy in September was a very close run thing and that a tightening before the end of 2015 was as good as a one way bet. What, pray, has happened to the Fed? The competitive sound-bite culture which has taken hold at the central bank could give the NFL and the NBA coaches a run for their money. Either the members of the FOMC have information which we don’t in which case they would be advised to keep their own council or they don’t know more than we in which case they should be even quieter than that.
Whether markets were wittingly or unwittingly misled is beyond the point. Perhaps they should take a piece of advice from Mark Twain who famously taught us “It’s better to keep your mouth shut and appear stupid than open it and remove all doubt”. Incidentally, while on Twain, he also gave us the following truism “October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”
Thus, US stocks did exactly what you’d expect them to do on shockingly disappointing economic news; they rallied hard. The 200 points or 1.23% which the Dow added on the day, having opened 200 points down immediately after the Payroll report impressed but not as much as watching 10-year Treasuries cut through 2.00% like a hot knife through soft butter. Both moves make it patently clear that markets have pretty firmly struck any Fed tightening within 2015 off the agenda.
I don’t know about you but I’m certainly confused. What is sure is that if the US economy is going to stall, it will do so with Federal Reserve devoid of ammunition, a prospect I do not at all relish.
Poaching Adonis
As the UK Conservatives meet for their annual party conference in the Labour heartland of Manchester (Labour assembled in true blue Brighton), the first opening salvo has already been fired in the form of Chancellor George Osborne poaching a Labour peer, Lord Adonis (no jokes please), an old right of left of centre former Blairite to head up a group established to manage major infrastructure projects. Open season has been declared on discombobulated Labour people.
Meanwhile, down in little wee Portugal, Pedro Passos Coelho has proven that austerity works and that if it works, even the party that pushes it through can win elections. Added to the Tory victory in May here in the UK, it lends credence to the case that “the people” are not entirely stupid when it comes to recognising that there is more to life than governments simply spending ever more money which they do not have. Greece might find itself back on the rack before the Spanish elections of December 20 and it could be that by then Podemos is found out for what it is, namely a rabble carried by promises which can never be kept.
Whether the British Labour Party is in the process of turning itself into such a rabble or whether it will remain a serious outfit has yet to be seen but “Chapeau!” to John Pienaar of the BBC who this week-end observed that with Tom Watson as Deputy Leader and the Jeremysaurus as Leader, the party has effectively become the Tom and Jerry Show.
Much in the press this weekend of course about the passing of the former Deputy Leader of Labour, Minister of Defence and Chancellor of the Exchequer, Lord Denis Healey. It was he, an old Communist, who crept cap in hand to the IMF for a bail-out of the United Kingdom in 1976 and who went on to become the hate-figure of the old Left for responding the IMF loan with the required, stringent austerity measures. This was the man who had previously promised to “tax the rich until their pips squeak”. I wonder what he would have thought of what his party is becoming; oh to be a fly on the wall on the Olymp of late Labour grandees where Lord Healey is surely to be found.
