After June's "awesome" jobs report, July's report extended the "awesomeness" by another staggering 255,000 jobs, despite the sluggish GDP growth in Q1 and Q2, and against the backdrop of declining earnings in the S&P, the index crested to yet another record.
Economic fundamentals are thrown out of the door as important indicators are ignored as traders and investors cheered the "adjusted" jobs report very much like the cheering of adjusted non-GAAP earnings.
Now, here's an interesting twist to July's jbs report. As reported by Zerohedge, Mitsubishi UFJ strategist John Hermann wrote that the "jobs headline overstates"the strength of the payrolls. he adds that unadjusted data show a "middling report that is nowhere as strong as the headline". He adds that the unadjusted private payrolls was +87,000 in July vs the seasonally adjusted figure of +217,000.
So did the BLS overstate the jobs report in support of the government, precisely during this election year?
Recent reports which seem to indicate the opposite. For example the amount of withholding tax in personal income has dropped 1% in July. This could be explained by :
1) A drop in actual jobs number or
2) A drop in high income jobs, and replacement in numbers are insignificant to raise the withholding tax.
Which brings us to the issue of consumer spending. If the personal withholding tax has dropped it means that the personal income earned has dropped as well. So how can a drop in personal income be positive for consumer spending. Consumer spending seems to be driven by debt as student loans, auto loans and consumer credit reached historic highs (See usdebtclock.org).
It the same report, corporate income tax has declined more than 10% as companies' earnings fell. You can bet on it that it will just be a matter of time before US companies begin another massive layoff.
Also, with the revenue from taxes falling, the US would have to rely on more debt to finance the government. Looking at usdebtclock.org, the amount of trade deficit has hit more than US$700B YTD. Coupled with the deficit spending by the government which number about US$500B a year, the US looks on track to deliver yet another US1T in total deficit by end of the year, which will result in another US$1T being added to the national debt.
Incidentally, the jobs headline obscured the trade report which showed the US had a trade deficit in July which was worse than expected.
So will the "awesome' report push the Fed to decide on a rate hike? I think NOT by a long shot. The ECB, BOJ, BOE are all having QE on steroids, with the PBOC pushing for even more easing to reboot China's economy. Having a rate hike risk pushing the US economy into severe recession (but it will come eventually despite what the Fed is attempting to prevent) as the US$ strengthens, thus affecting the profitability o f US companies further, on top of having the need to service the incredulous debts accrued n the last few years.
An interest rate hike will result in many of the over leveraged companies having liquidity problems as will the US government which needs to pay interests on its US$19T debt.
Given sch a scenario, I think there is unlikely to be any rate hike.
The jobs report changes nothing. EU banks remain in crisis, China and Japan continue to see some severe economic fallout, and the geopolitical crisis in the Mideast, EU and South China Seas look set to deteriorate further.
I still believe the only safe trade or investment is still in precious metals, miners and related ETFs.
The above is entirely my opinion.
No comments:
Post a Comment