As many of us know, economic data and trends are virtually always mixed. Those who are restricted to viewing life through a partisan political lens will always feel obligated to find data that is contrary to any macro statement, so since predicting the future is folly, the best we can do is look at the overall picture.
This morning's jobs report is indicative of an economy on shaky ground. Initial reports show just 75,000 jobs were added, significantly less than the 180,000 figure expected.
While our unemployment rate remains very low - and that's good not only for the short term, but for at least the potential of longer-term growth - the overall strength of the economy is not reflecting significant fundamental strength. The GDP remains at roughly half of the 5% to 6% we were promised, even though our deficit has exploded. Inflation, one of the primary indicators of increasing growth - remains tame. The yield on 10-year Treasuries has plummeted over 35% from their highs only seven months ago.
Wage growth as reached - and most importantly, remained -- 3% and above, and it's clear that those increases are indeed finally reaching our lower income workers, and that may be an even better sign than our unemployment rate. The unknown here, at this point, is where that money is actually going. Increasing wages are not pushing inflation or interest rates as they should be.
It was good news to see the Fed clearly indicate that they'll suspend their mad dash to increase interest rates, particularly given the above facts, and are open to actually lowering interest rates if much more weakness is detected. While it's debatable that the Fed has enough room to make a significant difference, decreasing rates may provide enough of a psychological boost to help, and sometimes that's enough to do the trick.
The 800 pound gorilla in the room is currently our trade "war" with China. The last thing a shaky economy needs is the prospect of an elongated trade battle with them, so if a decent deal can be reached we may see a very nice reemergence of corporate confidence. There's a difference between "a deal" and a "decent deal", so early market reactions to a deal may not be accurate in the long run.
The problem that we don't seem to understand is that our trade relationship with China is asymmetrical - Xi, while not exactly close pals with all of China's State Council, he has significantly more political latitude to wait things out than does Trump. And there have been multiple reports that Xi will wait until after the 2020 elections to make any deals, which could be bad news for us.
Obviously there's a lot of other data out there, and as usual, it can be interpreted in various ways. Trends and currents constantly change as new data is available. So, as always, we watch, and hope for the best. The China situation and the direction of bond yields are two good things to keep in mind going forward.
.
This morning's jobs report is indicative of an economy on shaky ground. Initial reports show just 75,000 jobs were added, significantly less than the 180,000 figure expected.
While our unemployment rate remains very low - and that's good not only for the short term, but for at least the potential of longer-term growth - the overall strength of the economy is not reflecting significant fundamental strength. The GDP remains at roughly half of the 5% to 6% we were promised, even though our deficit has exploded. Inflation, one of the primary indicators of increasing growth - remains tame. The yield on 10-year Treasuries has plummeted over 35% from their highs only seven months ago.
Wage growth as reached - and most importantly, remained -- 3% and above, and it's clear that those increases are indeed finally reaching our lower income workers, and that may be an even better sign than our unemployment rate. The unknown here, at this point, is where that money is actually going. Increasing wages are not pushing inflation or interest rates as they should be.
It was good news to see the Fed clearly indicate that they'll suspend their mad dash to increase interest rates, particularly given the above facts, and are open to actually lowering interest rates if much more weakness is detected. While it's debatable that the Fed has enough room to make a significant difference, decreasing rates may provide enough of a psychological boost to help, and sometimes that's enough to do the trick.
The 800 pound gorilla in the room is currently our trade "war" with China. The last thing a shaky economy needs is the prospect of an elongated trade battle with them, so if a decent deal can be reached we may see a very nice reemergence of corporate confidence. There's a difference between "a deal" and a "decent deal", so early market reactions to a deal may not be accurate in the long run.
The problem that we don't seem to understand is that our trade relationship with China is asymmetrical - Xi, while not exactly close pals with all of China's State Council, he has significantly more political latitude to wait things out than does Trump. And there have been multiple reports that Xi will wait until after the 2020 elections to make any deals, which could be bad news for us.
Obviously there's a lot of other data out there, and as usual, it can be interpreted in various ways. Trends and currents constantly change as new data is available. So, as always, we watch, and hope for the best. The China situation and the direction of bond yields are two good things to keep in mind going forward.
.
Last edited:
