The Yanks got a gold medal where it counts — in the job pool — and it means we’re in the swim to keep our economic and stock market heads above water!
Sorry for the pool metaphors but after our first day at the Olympics, I may have been over-exposed to ‘chlorine’!
In case your mind has gone to Rio, along with all the news services, you might have missed the great jobs report out of the US on Saturday morning.
The job creation effort of 255,000, when 180,000 was expected, catapulted the S&P 500 and Nasdaq stock market indexes to all-time high closes! The Dow Jones finished up 191 points, which showed how well the figures were received.
"The big takeaway, for me, is the market is doing exactly what it needs to move higher," Adam Sarhan, CEO of Sarhan Capital told CNBC. "We're now getting confirmation about what the Fed has been telling; that the economy is going to pick up in the second half."
Despite this great employment news, unemployment remained at 4.9% but a big part of that was because some 400,000 Americans joined the workforce — that’s called a rise in the participation rate — and it’s the kind of development that gets economists excited. All up, this was the report that gave pessimists and doomsday merchants a timely kick in the pants.
It says the gamble on quantitative easing was maybe worth it and that the US economy — largest and most important in the world — is actually benefiting from the huge growth of the money supply, the zero interest rates for a time and the Federal Government bail outs of US the banking system, insurance companies and the car industry!
There were experts who thought that it would have been more efficient for the authorities to butt out and let the market solve the post-sub-prime loans created by the GFC. These people always remind us of their views when the US economy looks to be faltering, such as last week, when the latest economic growth number came in at 1.2%, rather than 2% plus as the economists were forecasting.
So this huge job creation effort offsets the disappointing growth number for the second quarter of 2016 and confirms some of the arguments of economists like Westpac’s Bill Evans, who said that growth number was statistically affected by a rundown of stocks or inventories.
This can happen when sales are so strong that sellers of goods can’t keep up, so the level of stocks involuntarily (from the sellers’ point of view) fall. In the next quarter, you expect a pick up of stocks that then push growth rates up.
So stocks falling can be a step back before two or more steps forward.
We hope that the jobs growth number over the weekend is saying that the US is likely to be on a surge going forward and that’s why the stock market liked it.
These stats also make it easier for the Fed to raise interest rates, which means the Yanks will be taking another step towards a more normal economy that doesn’t need the central banks to always be saving it from potential economic disaster.
Today, our market should spike higher on these US numbers, as they take away another negative that has been fueling the fired up doubters who never supported quantitative easing or QE.
However, when these people look at how long QE has taken to work and how long the Fed has taken to introduce a second interest rate rise, they completely ignore that the quicker market solution would have taken US unemployment to 20% and Australian unemployment to possibly 12%.
The Americans endured a 10% jobless rate and we topped out under 6%, so QE might have been a slow burn in turning around the US economy but it averted a “buddy can you spare a dime?” scenario of the Great Depression. And for that we should always be grateful.
Sure, our economy isn’t as great as we’d like. We have wages rising really slowly and businesses reluctant to invest, which means the Government has more to do to help the economy, thus slowing down the improvement in the Budget Deficit and our public debt. But all this beats a Great Depression.
Anyone who disagrees is an insensitive, economic nincompoop!
These job numbers were the gold medal win of the weekend and that comes from an ex-competitive swimmer, who teared up with that 4 x 100 winning swim by our girls in Rio!