July Jobs Report Leaves Fed Looking Foolish

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It’s another “down day” for the market in the wake of a new Trump tariff threat. Announced via Twitter, the President skewered the Chinese once again for failing to hold up their end of the ceasefire bargain.

And as scary as tariffs may be, the real story this morning should revolve around another healthy jobs report released just before trading opened. The total labor force clocked in at a record-high 163.4 million for the month of July while payrolls increased 164,000, barely missing the Dow Jones forecast of 165,000.

Wages, however, did exceed expectations and increased 3.2% year over year, beating out projections by 0.1%.

For the most part, it was a good report. Unemployment remains low, new payrolls are being added, and wages are rising.

“For all the concern over weak global growth and trade policy, the domestic economy is still holding up reasonably well,” commented Andrew Hunter, senior U.S. economist at Capital Economics, a London-based research consultancy firm.

Dr. Richard Curtin, a research associate professor who runs the University of Michigan’s consumer sentiment survey, shares a similar opinion:

“The job market is good, they are pleased with their income gains, and household net wealth continues to climb as well. It’s not that they expect these factors will continue to accelerate, but rather that they expect continued moderate growth in income and jobs. Consumers don’t expect much change in the unemployment rate in the year ahead.”

Better yet, the “real unemployment rate” – which accounts for discouraged and underemployed workers (part-timers who want full-time gigs) – hit 7%, the lowest it’s been since December 2000.

Yes, that’s right, real unemployment just dropped to its lowest level in over 18 years.

And equities are crumbling. The S&P (-1.25%) and Dow (-1.30%) are both hemorrhaging capital right alongside the Nasdaq Composite (-1.10%), all of which continue to trade well outside their normal price range.

It’s an ugly day for the market despite the recent release of a jobs report that should have investors feeling confident.

Or at the very least, less convinced that a recession is on the horizon.

More than anything, though, this morning’s employment statistics have left the Fed looking downright foolish. Powell slashed rates because (according to him) the economy was showing signs of a contraction in the near future.

Instead, he’s got two glowing jobs reports – one from June, the other July – in his rear-view mirror and a stock market that took a nosedive from all-time highs after his rate cut announcement.

If anything, this last week has proven that the Fed has become the market’s number one destabilizing force. Not Trump, slowed growth, or even the trade war.

Uncertain about Powell’s next move, it seems investors have grown increasingly nervous.

And for good reason.

The Fed chairman – one of the biggest influences (if not the biggest influence) on the U.S. economy – appears ready to keep cutting rates despite strong economic indicators. He’s pulling the “emergency chute” way ahead of schedule, and as a result, investors are selling.

Because if the Fed doesn’t know what’s going on, we could be on a collision course with major economic instability.

Fueled almost entirely by misguided monetary policy.

 

 

 

 

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