Chaos: Latest job report may scuttle Fed interest rate hike

Huge BLS May jobs miss: only 38,000 jobs added to the U.S. worforce, previous month’s numbers revised downward. How’s Obamanomics workin’ out for ya?

Unemployment line, 1930s.
Unemployment line, 1930s. Are today's real unemployment numbers nearly as bad? (Via Wikipedia)

WASHINGTON, June 3, 2016 – In a stock market that’s been wobbly for this entire post-holiday week, stocks took another opening bell hit Friday morning when traders and machines woke up to the following breaking news from CNBC:

“In May, the U.S. economy added just 38,000 jobs, far below economist estimates of 162,000.”

What does that do for the Federal Reserve’s much telegraphed and for sure absolutely almost for certain mid-June interest rate hike?

“Prior to the jobs report, the market saw a 21 percent chance of a rate hike. Those odds now stand at 4 percent.

“After the announcement, odds dropped in all months tracked by CME:

•June: 4 percent chance, down from 21 percent prior to the jobs report.
•July: 38 percent chance, down from 58 percent
•September: 49 percent, down from 66 percent
•November: 52 percent, down from 68 percent
•December: 68 percent, down from 79 percent
•February 2017: 71 percent, down from 81 percent”

ZeroHedge takes things further.

“… there was no offsetting increase in temp workers (something we caution recently), and no growth in trade and transportation services.

“The change in total nonfarm payroll employment for March was revised from +208,000  to +186,000, and the change for April was revised from +160,000 to +123,000. With these revisions, employment gains in March and April combined were 59,000 less than previously reported. Over the past 3 months, job gains have averaged 116,000 per month.”

Concludes ZH:

“There is no way to spin this number as anything but atrocious.”

Referring to the Bureau of Labor Statistics’ (BLS’) usual downward revision of the previous month’s numbers—a slight of hand that’s been going on for years to make employment numbers seem better each week than they really are.

A rambunctious ZH commenter adds the following cynical (but likely true) postscript:

“gotta take this month down so August/Sept/Oct look awesome….. it’s all about the election” [sic]

Obamanomics spinmeisters, however have things Under Complete Control, something we can easily glean from another CNBC headline:

“A behind-the-scenes force may explain the awful jobs report, says ex-Obama aide”

A “behind-the-scenes force”? The Invisible Hand, perhaps? Low flying, invisible birds?

No. More plausibly, it’s the former chair of Obama’s Council of Economic Advisers, Austen Goolsbee, he of that wondrously Dickensian name. Now back in academia (a favorite and reliable sinecure of former Democrat political appointees), Goolsbee drew his own conclusions, apparently based on economic magical realism:

“The dramatically weak May employment report from the government may be a sign productivity is starting to turn the corner, the former chairman of President Barack Obama‘s Council of Economic Advisers said Friday.

“‘As I’ve been saying for months, if productivity goes back to even resembling normal, the jobs numbers are going to deteriorate quite a lot…”

Back in the real world, the Maven has been saying for months if not years that the U.S. economy needs to add 300,000+ jobs per month just to get us back to pre-Great Recession levels let alone revive national economic health. It’s what the government used to say, too, back in the day. But the Maven continues to draw upon reason and logic, neither of which seems to count currently in the media.

Read also: May job numbers show Obama’s economy continues to falter

The Maven also keeps reminding folks that BLS’ U-6 unemployment numbers—which also include the underemployed as well as those who’ve either run out of unemployment bennies or have given up looking for work—still remains pinned at roughly 10 percent, a datapoint where that number has been hovering for the better part of a year now.

Don’t believe the Maven? In yet another CNBC report, an ornery but highly respected veteran corporate CEO adds some extra fuel to the Maven’s U-6 fire:

“Jack Welch, former chairman and CEO of General Electric, said Thursday the Obama administration’s heavy focus on combating climate change is “radical behavior” that’s holding back the economy.

“A longtime GOP supporter, Welch… [said]… the [administration’s] priority on preventing climate change spills over into ‘all kinds of policies throughout the different agencies.’

“The result, he said: ‘You get an economy that won’t move. You get ozone regs that are wacky.’”

Wacky. That’s a mild word to describe the quality of intellect involved with EPA regs in general.

Welch’s only misstep here was in his inadvertent use of the intentionally distracting PC substitute term for “global warming” in his response. Economically speaking, he is essentially confirming the by-now-obvious point that for nearly 8 years now, this Administration has wasted time, attention, propaganda and lots of taxpayer money on everything BUT getting Americans back to work, productivity or both.

Note, BTW, that CNBC is careful to identify Welch as a Republican supporter, a dog whistle to the faithful meaning that despite Welch’s legendary status as a captain of industry, he need not be taken too seriously. Democrat supporters are rarely if ever identified in that manner.

Given this morning’s dreary job figures, it’s clear we’re dealing with the same old, same old. But no one in the political and crony capitalist establishment is listening. Meanwhile, we suddenly find that odds have gone down considerably that the Federal Reserve will follow up on its threat to raise interest rates, at least this month. Probably. We think. In Washington, you never know, unless you have a phone and a pen. Like the President.

As of 11:30 a.m. EDT on Friday, all three major averages had fallen 0.5-0.75 percent with pretty much all sectors getting hit. Oil is weak, though not off much, but gold and silver are getting plenty of buy orders. If interest rates stay low, that takes the negative price pressure off precious metals, at least for now, allowing at least gold to get back on its earlier 2016 rally track. But things will remain volatile Friday, probably carrying over into next week.

Trading diary

Nothing much to say here Friday. We may do a little poking and prodding on existing positions, and we did buy a tiny number of shares in RYT, the equal-weight tech ETF that we can trade without a commission at our brokerage. But that’s about it. Barring some kind of unforeseen rally Friday afternoon—always possible—we’ll close down today and probably open in the negative on Monday. Then it’ll be time for more watchful waiting.

Nobody knows what the government or the Federal Reserve will do next because they don’t know either. The only thing we do know is that if you attend a Trump rally in San José, California, you’ll get the crap beaten out of you for exercising your free speech rights and the cops won’t do a thing about it. Which, as we noted in a previous column, is what is driving more voters every day to support the candidate the organized agitators (not “protesters”) are trying to put out of business.

Keep waving those Mexican flags, dudes. That’s just the way to get what you want. Meanwhile, this growing chaos will keep going until November and will likely keep the markets in a turmoil-driven trading range all the while. So let’s all be cautious as to where we park our funds between now and then.

Have a good weekend!

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