Today’s Payroll Report had 145k new jobs, but according to David Rosenberg, when adjusting for downward revisions and BLS Birth-Death model of jobs, employment grew by 79k. In my opinion we need 100k new jobs a month to keep up with population growth, thus by using this as an adjustment for population growth, when subtracted from the 79k figure, jobs actually had a negative growth of 21k last month. The bond market cut the 10 year Treasury yield by 4 bps, implying that the economy is cooling.
The dominant paradigm of the past 30 years is the loss of good paying blue collar jobs due to globalization where the jobs are transferred to low wage EM countries where wages may be as much as 90% lower. The worse it gets for U.S. workers the more they try harder to accept a dead-end sub-minimum wage tippable job like a waiter where the minimum wage is $2.50 an hour. Thus new hiring is not adequate evidence of economic growth. If someone is unemployed and gives up looking for work for a year they disappear from government lists of unemployed people; should they start again to look for work and get a fake dead-end “job” that pays 80% less than their old job then their new job still counts as a new job that is cited by some economists as proof the economy is growing. The proper way to measure unemployment would be to identify people who will participate in a lifetime survey and have them report details such as unemployment, new pay, including contingent pay, and do a detailed assessment of how reliable is their income: is it all base salary or is it contingent upon making a sale or getting a tip, etc.
The big risk to the economy is not that jobs will grow to the point where 1970’s-style inflation is triggered that destroys the bond market. Instead the risk to the economy is that a massive investment asset bubble will fool people and tempt them into doing dangerous things like retiring too early on a too small of a nest egg or buying investments with leverage and then experiencing a negative net worth when a deep 55% crash comes. As the bubble grows bigger then traditional fundamentalist advisors lose credibility in the eyes of the general public and thus consumers get less good advice because they tune out the voice of caution; instead consumers tune in to bubble demagogues who encourage excessive, uncompensated risk.
If a big crash occurs where stock values return to traditional PE10 metrics then expected the SP to be at 1500 instead of today’s 3283, a drop of 54%. The heavy debt burden society has incurred will act as a deflationary damper on spending and will dampen inflationary forces. China’s debt bubble expansion potential has been maxed out so don’t expect any stimulus from them. The EU and Japan have massive problems with disinflationary debt bubbles and very little reason to believe they can fix it. Thus the risk of a runaway global labor market triggering global inflation is unlikely. Instead a new trend will be that the other Developed countries will provide a Developed country labor force cheaper than in the U.S. and then college graduate type of jobs will migrate out of the U.S., which will be a shock, as the globalization paradigm so far was mainly a blue- collar phenomenon.
Investors need independent financial advice about the risk of misunderstanding the hidden problems in labor markets and how that influences investments.