So, we had the jobs report. But, so what?

Do you really think that the Fed are paying attention to the jobs number anymore? However, expectations were of 175k jobs. The unemployment rate was expected to drop 4.9-4.8 and average earnings to rise by 0.2. Headline was 151k and revisions subtracted an additional 30k from previous. The unemployment rate held at 4.9 and there was a big miss in the private sector with more jobs from non-productive government jobs. The participation rate held at a very low 62.8 and average hourly earnings came in at just a 0.1 increase. Hours worked went down to 34.3 and revisions were down as well, with back to back declines in hours worked. 

Source: iStock

Essentially, Americans are working fewer hours and not getting a pay raise. There has also been a huge increase in workers who are working multiple jobs just to make up the hours of the week where they can't otherwise complete a full working week, which essentially means there has been a big increase in service sector part time jobs relative to fuller time higher skilled and higher paid jobs in, say, the manufacturing sector. In fact, since 2014, the market has added 520k waiters and bartenders, but have lost 13k jobs in the manufacturing sector even though fewer people are eating out as the US economy continues to struggle. The point is, many waiters are now having to have more than one employer as their hours are getting cut and they have been axed from their full time jobs.

This jobs report was considered one of the most critical reports in the history of the data given the timing in respect of this current cycle of normalising rates by the Federal Reserve. Now, I would argue that we are in a cycle of rate hikes, given that there has been just one hike since 2006 in Dec 2015 and then nothing since, so hardly a cycle is it? In fact, if only the Fed would admit that they are in fact in an easing cycle, and have been ever since they rose rates by 25 basis points just once and stopped hiking back in 2015. 

However, they stick with the same mantra and markets seem to buy it each time. Just as markets begin to outprice a rate hike, the Fed step in and speakers such as Dudley, Williams and Fischer all come out with bullish sentiment for the U.S. economy and reasons for why the Fed will hike interest rates. In some cases, Fed speakers are advocating for a hike sooner than later on every little glimpse of an improvement in U.S. economic data, no matter how small of an improvement it is, at which point, the dollar rallies, the Yen drops and gold is sold off. 

I give up!

This time around, even when the combined key data in the US last week reads poor, the dollar managed a big turn around. I give up! I mean, the markets should have been skeptical that the Fed were going to resume rate hikes this month following the release of the much weaker than expected ISM manufacturing survey for August alone. 

That survey revealed that business confidence in the manufacturing sector declined sharply by 3.2 point to 49.4 in August. What was so significant in that was it took us right back into the downturn in the manufacturing sector again and essentially reverses the gradual improvements that had started to take place since earlier this year.  That said, the ISM manufacturing survey was actually weaker at 48.6 in November just before the Fed raised rates for the first time in December, however, the point is, the Fed have only been able to hike rates that one time against a back-drop of a stagnant out-put market in the sector or a manufacturing ISM survey that has averaged little over contractionary type numbers over the last year. 

Source: iStock

The Fed have convinced people that they will raise rates in September on the back of Fed speakers saying that it was possible that they could raise rates. December is probably more believable given there are another four years for another presidential election and of course the Fed wouldn't want to rock the apple cart before the elections before then. But, the point is, the market is so fickle at the moment that they have to wait on the Fed before making any long-term investment decision and hence you got a huge turn-around in the dollar even on bad data.

The fact of the matter is, the Federal Reserve keeps trying to instill confidence in the U.S. economy, hoping for a miracle and remains optimistic even though the economy is heading for a huge recession amongst all the bad news. The Fed just keep talking to distract us from the idea that they can't actually raise rates - If they could they would have done by now.