Companies Add Jobs for 18th Straight Month – Investors Jump Out Windows

The horror! Another month of the private sector adding jobs (click chart to enlarge):

I have taken the liberty of adding back in the 45,000 jobs that were subtracted from the August total due to the Verizon strike. Those jobs are still there after all. But even without that adjustment, it would still have been 18 months in a row.

So why did the stock market dive 2.5%? Investors are worried that the economy is stalling and becoming vulnerable to recession. And indeed, if we look at the second derivative of the first chart, we see that jobs growth has stalled. And the annual growth rate has ticked down for the first time since the bottom:

However, if you look back at the top of the last cycle, you can see that the growth-rate peaked in early 2006. And the stock market didn’t top out until October 2007 – a year-and-a-half later. So, while the slowing of the growth-rate is concerning, it is not necessarily the kiss of death.

And there is a huge difference between now and the last peak: the Fed had taken rates up to 5% and held them there until the housing bubble popped – and the rest of the economy along with it. Back then, the Fed was deliberately squeezing the economy, and that is the very best sign of a coming recession. Look at this Fed Funds chart:

Is it a coincidence that recessions are triggered by rising rates? I don’t think so.

And is the Fed squeezing the economy now? Not hardly, right? Is it possible for a recession to begin with rates at 0%? I suppose so, but it’s not something that has happened in the last 60 years.

Now, if Bernanke started raising rates while complaining about a gold bubble, then the odds of a recession would skyrocket. The Fed also likes to have a recession when workers get too uppity. Got to fight that “wage inflation”, right? Not exactly a problem at the moment…

And of course, there is a presidential election coming. Unless the powers-that-be give Obama the thumbs down, you can bet that the entire federal apparatus will be in high gear trying to keep the economy afloat. Hell, some of those CIA black helicopters might even fly over here and drop some bales of cash on us when they are done in Libya.

A non-hysterical scenario would be a muddle-through economy over the next year, accompanied by a range-bound stock market. Time will tell, but as I’m sure you know, swing traders can make huge profits in such a market. I think that’s a more likely scenario for as long as the Fed remains friendly. If the Fed turns hostile, Jean-Claude Trichet style, then I can’t be responsible for what happens. Of course, the ECB has already backpedaled, so the world’s two most important central banks are now dovish. Maybe it’s too late, and Trichet has doomed the world to recession. What do you think?

11 thoughts on “Companies Add Jobs for 18th Straight Month – Investors Jump Out Windows

  1. While housing prices are down in certain predictable areas rates have helped forestall the collapse banks feared. Now, however, if rates rise prices may fall from already lower levels. Jobs/income, it seems, has to be the pull to the push from all the banker benevolence. Because of the price to rate problem above, the Fed won’t meaningfully raise rates until jobs pick up.

  2. I would think that rates would be raised when core inflation rised and is deemed moving too quickly or too high by the Fed.

    It seems the economy is in one of the business/generational cycles that could possibly take 20 years or longer to complete. I’m not sure when this latest cycle started except to look at technicals as a guide. Using year 2000 as a base, it’s half-way through.

  3. Thanks for this post and your hard work, always.
    I tend to see media stories of those struggling, perhaps it creates a bias.
    Re trading, given the volatility, maybe the way to go is to buy on a down day (looks like futex are red currently), and sell some calls on decent
    Happy labour day

  4. With CAPE (Shiller’s PE) at 20 and fair value at 15, a swing to 10 is more likely than not. It’s a swing trader’s market. Cyclically, we have the 120-year cycle bottom due in 2014 (probably with a retest in 2016 like the last cycle in 1896 did), so we should be looking for a 1973-74 scenario of a 50% decline.

  5. Well said Bob. I’ve been following the PE10 as well and getting into single digits is “normal” given history. Not that the gov’t isn’t trying to alter the indicators!

  6. Speaking of cycles (and bubbles), how about those bonds?

    This is another bubble Bernanke is blowing and it is going to splatter big time when it busts. I realize he has little choice in the matter due to the “damned if you do, or damned if you don’t” position he’s in. It just is what it is.

    Here’s TBT weekly showing a bearish engulfing:

  7. And given yields are lower again today, I’d say that candlestick is geting “confirmed.”

    My EUO is looking very nice though. As are my short ETFs.

  8. g

    30 yr printed an new all time high today

    but has slipped back

    closes above 141.26

    and i will be buying bonds with both fists looking for a

    1% handle on 30 year bonds

  9. P, there is a nice, fat gravestone doji on the gold daily. Any thoughts? Especially with the dollar pushing 76, is 1936 in the cards still?

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