Why? Because the ADP private payrolls report, issued Wednesday, July, 3 missed analysts’ expectations, coming in at a meager 102,000 new private sector jobs being created in June. This sets the stage for a miss on the government jobs report due tomorrow and in the eyes of most media savants and pundits, this signals a softening economy … potentially the end of the line for one of the longest economic expansions in our nation’s history.

The Bad News Bearer Jeff Cox 

“Job creation has another rough month in June as private payrolls rise by just 102,000” — Jeff Cox (AKA “the bad news Bearer“) CNBC, July 3

“The economy’s growth rate is significantly slowing, and I think the risks are rising that it’s going to stall out,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC. “I think the economy is on the razor’s edge, and this number is consistent with that view.”

Does this conclusion make any sense?

My answer is definitely NO. Think about this for a moment: the US unemployment rate is 3.6%, the lowest unemployment rate in 50 years. I’m not certain what “full employment” is, but we have to be approaching that level. I would assume as the economy approaches “full employment” hiring has to become more difficult, ergo slower job creation. This is not a negative, as it should exert upward pressure on wages (wage growth we’ve been lacking for years) for the benefit of all those working.  Bigger payrolls equal a stronger economy.

Unfortunately, there is a downside. This is that we may be bumping along the bottom as it pertains to the availability of able, qualified and motivated employable individuals. Personal examples may be in order here.

Last weekend my wife and I had a layover in Atlanta. It was during the lunch hour so we both went to different fast food stands to pick up a bite to eat. I opted for a pretzel-coated hotdog (not the most healthy choice but I craved one at the time). When I arrived at the stand there were 3 people ahead of me in line. It took ten minutes to get to the head of the line in what was, ostensibly, a fast food outlet. When I asked for my hotdog at high noon (peak lunch hour), much to my chagrin, the cupboard was bare … no pretzel-dogs! How does that happen when you have a really good crew in place. My wife’s experience was a little different (she actually got what she wanted). She waited 15 minutes to get a bagel prepared to her specification. I guess I should have had a bagel. Admittedly these are entry-level people that staff these kiosks (in our cases there were no experienced hands to be found), but, at a minimum, the service should at least be FAST in an airport.

The bottom line on employment growth: in a “full employment” economy the ability to hire good people may be more of an issue for employment growth than a weakening economy  …Just my thoughts.

Meanwhile … the Dow, S&P, and Nasdaq all closed at record highs yesterday!

Happy Fourth of July! (for those of you not addled by the media)  

More talk about the Fed and rate cuts

Actually, I should have titled this section “More stupid talk and speculation about the Fed and rate cuts.” Because it is stupid and dangerous. Here’s an example:

“Jobs report could show a slowing trend and be the lever the fed needs to cut-rate”—Patti Domm CNBC July 3.

I believe …

• The economy is doing fine for a $20 trillion GDP economy. Unemployment is already low (remember 3.6%, a 50 year low) and inflation is low. 2% to 3% seems to be a sweet spot for non-inflationary GDP growth.
• Interest rates on the long end (where mortgage rates and rates on long-term capital projects are set are very low). The current rate on the 10-year US Treasury is 1.95% … only about 55 basis points from the lows of several years ago. 
• The tax cuts of last year and current federal deficit spending continue to supply stimulus to the economy.
• What if the economy does suffer from a currently unforeseen shock? Cutting rates now leaves little in the way of dry powder to combat a real crisis.

Finally, the Fed’s dual mandate is to be a watchdog on the inflation front and provide stable employment. If inflation rears its ugly head, rates are going up. And, it will just not only be the Fed moving rates up but bondholders who will demand higher inflation adjusted returns (This is something the Fed cannot control).

My wish: Please, cut the Fed some slack. It’s doing fine.

and, oh yes,

Beware the Jobs report! Gimme a break!

What’s your take?