Deceptive Jobs Report Suggests Quantity May Be Up, Not Quality: Possible Market Crash in 2017
The December jobs report shows that job creation was weaker than expected in December in the United States. But salaries rose in some sectors. Many analysts have interpreted this as evidence of economic health. But, even if unemployment is back to a pre-subprime crisis level (its best since August 2007 at 4.7%), the picture is gloomier upon closer inspection and could lead to a market crash.
Moreover, wage growth, apart from some management positions, stayed flat. However, the U.S. Bureau of Labor Statistics (BLS) says that 155,000 jobs were added. What could be wrong with that?
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What’s wrong is that most of these jobs occurred either in healthcare or in minimum wage type categories. (Source: “Where The December Jobs Were: Nurses, Waiters, And Waste Cleaners,” Zero Hedge, January 6, 2017.) Social assistance was another of the top employers in December. Judging by the type of employment, you’d think Americans were getting a) sicker and b) fatter. Indeed, the type, or quality, of jobs being created is no cause for celebration. That’s why a market crash is likely.
Professional and Business was the second-largest hiring sector. It got its boost from Administrative and Waste Services to Buildings and Dwellings. Leisure and Hospitality was another category that saw more people hired in December, dominated by the classic “food services.” These typically increase around the holiday season. (Source: Ibid.)
Retailers, despite the apparent terrible holiday sales figures—Macy’s Inc (NYSE:M) announced another wave of layoffs and job cuts—were one of the leading employers as well. From a category perspective, the best news was the fact that manufacturing employment rose. The financial sector and the government also added jobs. In total, the U.S. economy created 2.16 million jobs in 2016. (Source: Ibid.)
The December Jobs Report Sends False Signals of Economic Health
Some suggest that the December employment report shows that Donald Trump will inherit a healthy U.S. economy when he formally succeeds Barack Obama on January 20 as President of the United States. Instead, Trump will have to act to prevent a possible market crash, especially given the Dow’s recent rise.
Accordingly, the Federal Reserve might increase its program to raise rates. But it will do so on the basis of a jobs market that remains weak at the core. The job growth numbers are good, but they mask the problem of under-employment rather than unemployment.
Wages have increased only for few sectors of the economy. Disparity is on the rise. In such conditions, increasing interest rates could discourage growth. Also, while more jobs were created, the momentum is negative. Job creation averaged 180,000 a month in the United States in 2016. It’s lower than the 2015 monthly average of 229,000.
The Employment Report is indicative and offers insight into the potential course of market performance. A better-than-expected employment situation, for example, can mean increased consumption, and therefore higher economic growth and bullish effects on stock prices.
When the jobs report points to an improved employment situation, the markets respond favorably. A reduction in the unemployment rate, for example, may mean that the economy is growing at a rapid pace. Moreover, it predicts that demand is rising and that the economy is healthy.
However, with all things being equal, while employment should mean more disposable income, a mixed report can create the false impression of economic health. This is the problem with the 2016 jobs report. It shows growth, yes, but the numbers don’t tell the full story. It’s the financial equivalent of putting lipstick on a pig. This means that the markets could rise based on a deception. In other words, a bubble, which reality inevitably bursts.
