Tens of thousands of Americans were added to payrolls in the latest jobs report, which certainly seems like good news for the average citizen. However, folks at the Fed and on Wall Street were not so impressed. While the September figures highlighted softening in the labor market, the New York Stock Exchange would have appreciated a poorer performance. In fact, Wall Street is in a position now whereby good news is bad news – and vice versa. Once again, it highlights the perversion that the Federal Reserve has imposed on the equities arena, from the institutional investors to the retail traders on Robinhood. So, what did the latest non-farm payrolls report tell us?
September Jobs Report Softens
Last month, the US economy added 263,000 new jobs, down from the upwardly revised 315,000 in July, according to the Bureau of Labor Statistics (BLS) data. This was slightly higher than the market estimate of 250,000. The unemployment rate came down notably, from 3.7% to 3.5%. Average hourly earnings eased to 5% year-over-year, the labor force participation rate slipped to 62.3%, and average weekly hours were flat at 34.5. Two sectors contributed to about half of the gains: leisure and hospitality (83,000) and health care (75,400). Professional and business services added 46,000, while manufacturing and construction added 22,000 and 19,000, respectively. Government payrolls declined by 25,000, financial activities fell by 8,000, and transportation and warehousing tumbled by 7,900. Retail trade also lost 1,100 positions.
Overall, this was the lowest reading since April 2021. But this was not enough to satisfy investors. It was an ocean of red ink as the leading benchmark indexes recorded sharp losses. The Dow Jones Industrial Average fell 2.11% to 29,296. The S&P 500 lost 2.8% to 3,639, while the Nasdaq Composite Index plunged 3.8% to 10,652. Gold and silver prices fell 1.1% and 2.42%, respectively, and Bitcoin tumbled 2.36%. The benchmark ten-year Treasury yield rose 6.4 basis points to 3.88%.
But why? Shouldn’t positive economic data trigger a rally? Not today. The US central bank’s objective is to reignite price stability by tightening monetary policy, primarily in the form of higher interest rates. Eccles Building officials have conceded that they will jack up the benchmark fed funds rate and keep it higher until inflation comes down, even if this means higher unemployment and slower economic growth. Therefore, as long as the consumer price index (CPI) or personal consumption expenditure (PCE) price index are elevated, the Fed will keep hiking. And it has no reservations about pulling the trigger on 75-basis-point rate hikes if the economy is still chugging along.
Remember, the financial markets need easy money policies to survive. Without artificially low interest rates, stocks cannot go up since traders have become addicted to the something-for-nothing mentality.
Consumers Are Maxed Out
The cost-of-living crisis is not abating. Now that wage growth is slowing, consumers are turning to their credit cards to keep their heads above water. This was evident in the Fed’s latest report that found consumer credit surged $32.24 billion in August, up from $23.81 billion in July. This also topped the market consensus of $23 billion. Revolving credit – credit cards and lines of credit – increased by $18.1 billion, and non-revolving credit – student loans and mortgages – swelled by $5.2 billion.
By now, it has become clear that consumers are tapped out. The personal savings rate has collapsed, the percentage of personal disposable income has plummeted, and ostensibly nearly all of the pandemic-era pent-up savings have vanished. The dramatic jump occurred as grocery store prices surged almost 14% and kids were entrenched in the lucrative back-to-school shopping season.
It might not be surprising that 60% of Americans are living paycheck to paycheck, according to a recent LendingClub study. Even households earning more than $100,000 a year are facing financial pressures. “More consumers living paycheck to paycheck indicates that many are continuing to lose their financial stability,” said Anuj Nayar, LendingClub’s financial health officer, in a statement.
Economists Go Woke?
It is no secret that domestic manufacturing employment is not what it was 50 years ago. Staffing levels peaked in 1979 when nearly 20 million Americans were working in factories. But while there are many reasons for the downward trend, any concerns should be dismissed as nothing more than a situation of keeping “white males with low education” in “powerful positions,” according to Adam Posen, an economist and president of the Peterson Institute for International Economics (PIIE).
“The fetish for manufacturing is part of the general fetish for keeping white males of low education – outside the cities – in the powerful positions they’re in, in the US,” he said, adding that there has not been too much concern over blacks losing jobs during recessions or single women being displaced by computers. “But when it started being the white male manufacturing people in the so-called Heartland, which by definition was not urban, then suddenly this was a crisis.”
First, minorities without formal education have been deeply impacted by the lack of manufacturing opportunities, according to a plethora of reports. Second, considering that the average factory worker starts out earning less than $30,000 a year, it is hard to say with a straight face that they are in “powerful positions.” Third, these remarks prove why common folk dismiss economics and show how ivory tower economists can be just as woke as professionals in other fields.
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