When you average December’s blowout jobs number, which few foresaw, with November’s weak number, which nobody foresaw, what do you get?
That’s right, nothing. The average of the two months isn’t materially different than the average gain of the past year, or the past 7 years for that matter. This was much ado about nothing.
But as the Wall Street Journal put it,
Strong U.S. Job and Wage Growth Provides Assurance on Economy
Employers added 312,000 jobs last month and 2.64 million in 2018, the best year since 2015
Wow! They sure were excited. It was a perfect excuse for them to be bullish, when I would have thought that more jobs would keep the Fed on a tightening path, which is bearish.
Fed Chairman Jerome Powell disabused us of that notion later in the day. In a panel discussion with his predecessors, Jerome went all soft hearted on us and announced that Fed balance sheet “normalization” (a euphemism for tightening) wouldn’t be on autopilot after all. Now that’s not the same as saying they would print, but the market took it as a gift, which it most assuredly isn’t.
Finally, the annual growth rate at the bottom of the chart shows gentle acceleration this year. But this is nothing new either. The same thing happened in 2013 and 2014, and the current annual growth rate of 1.8% is smack dab in the middle of the range of the past 7 years.
The US Economy Is Too Big To Tweak, But The Markets Aren’t Too Big To Strangle
7 years of various Fed policies, and both a tax increase early in the period, and a huge tax cut in the middle, and not thing has changed in the trend of jobs growth. The growth rate is 1.8% now, the same as in August, the same as in February 2017, the same as in August 2016, May 2014, January 2014, January 2012. And it has been within a couple of tenths of a percentage point in every other month in between.
The US economy is a monster. It’s orders of magnitude bigger than the monetary and fiscal policies designed to tweak it. It goes its own way. In the long run, if the Fed chokes down on liquidity long enough, the economy will succumb. $50 billion a month in drains is enough to matter over a long enough time. But the US economy won’t respond anywhere near as quickly as the financial markets which are directly driven by liquidity.
Wall Street will make up all kinds of excuses about why the market is or is not following the trend of the economy. And they will all be wrong. Because the markets don’t follow the economy. They must, over time, go with the flow of liquidity.
The Fed slowing the rate at which it withdraws money from the system won’t change that. Less money is less money. It won’t have an impact in a straight line. It never has, and it never will.
But unless the Fed literally adds money to the system regularly to inflate the financial markets, the markets will deflate over time. That’s because the US government will add $1.2 trillion a year in new supply of securities to the system. With total money now nearly static as the Fed sucks money out of the system, the prices of existing securities must decline.
Traders can trade what the markets give. And we have trading gurus here at Money Map Press who will help you do just that!