False Perception of Improving Employment Means It’s Time to Sell
Okay, so the employment numbers on Friday were great, the U.S. economy is about to take off and it’s clear sailing for the markets…or so Wall Street would like you to believe.
The employment data for June wasn’t nearly as good as many would have you believe. Total Non-Farm payrolls jumped 195k from May to June—at first glance this sounds pretty decent. However, 360k individuals joined the workforce in a part-time capacity and there was a 322k increase of those workers who viewed themselves as being employed part-time for economic reasons. The U-6 unemployment number, which includes persons marginally attached to the labor force, plus those that are employed part time for economic reasons, jumped to 14.3%, from 13.8% in the month prior.
But perhaps the most distressing part of the report was that the U.S. economy is still losing manufacturing jobs—6k more were shed in June. In fact, 52k manufacturing jobs were lost since June of 2012. Manufacturing jobs are far more important than creating jobs for part-time waiters and waitresses because making things helps reduce our trade deficit. The goods-producing sector is also the area of the economy that is most conducive to expanding productivity and creating wealth.
The perception, or perhaps more accurately, the misperception of an improving economy has caused the Fed to outline its exit from QE. The problem here is that not only has there been no significant improvement in GDP growth but the market is preparing for the removal of Fed stimulus by sending interest rates and the dollar soaring. Of course, this is exactly what is needed for the long-term health of the economy. Nevertheless, higher borrowing costs along with a stronger currency will put downward pressure on the earnings of multi-national corporations. Look for the economic data to be unimpressive this summer.
I’m taking profits here and heading into cash for this earnings season.