09 Dec THE LABOR MARKET IS STRONGER THAN ALL HAD ANTICIPATED!
Wow! The jobs data was a complete blow out. November’s payrolls climbed the most since January. October’s statistics were revised higher. The increase in wages is now at a cycle high. Yes the labor participation rate did decrease by 0.1% but this was more of a function of workers reentering the work force, a sign of strength.
Commenting further about wage growth, for the first time since 1972, wage growth eclipsed mortgage rates for the first time since 1972. Wow! The macroeconomic implications are significant especially regarding home values, the asset class most associate with net worth.
Partially because of jobs, consumer confidence also exceeded estimates rising to the highest level in seven month, a point I think is significant given the importance of the Christmas shopping season.
And then there is oil. Oil surged another 2% as OPEC, led by Saudi Arabia, pledged to cut production by an amount greater than expected.
Three months ago all were dogmatic that a recession was at hand, a view that I did not share. All became yield curve experts stating that an inverted yield curve has a 100% correlation to a recession. However these newly minted experts did not mention the time, the degree and what proxies being utilized in this inversion are of paramount importance. According to a dated Bloomberg report, there has been over 70 inversions since WWII but only 12 recessions.
Historically negative real interest rates are associated with inflationary growth. Negative real interest rates only occur 0.3% of the time. The vast majority of the Treasury spectrum has a negative real yield. Negative yielding debt occurs 0.001% of the time, a statistical nonevent. Three months ago there was a record $18 trillion of negative yielding debt.
Is money now beginning to be utilized in a more efficient manner…i.e. increasing economic production versus financial alchemy?
Only history will answer this question. It is human nature to extrapolate the current into infinity. Generally speaking for the exception of one year, the growth rate of the last 10 years has been about 50% of the norm since WWII…aka the New Normal.
As we all know change is the only constant.
What will happen this week? The economic calendar is comprised of a small business sentiment survey, various inflation indices and retail sales.
Last night the foreign markets were down. London was down 0.12%, Paris down 0.42%, and Frankfurt down 01.9%. China was up 0.01%, Japan up 0.33% and Hang Sang down 0.01%.
The Dow should open quietly lower ahead of week filled with potential catalysts including central bank meetings and America-China tariff deadline. The 10-year is up 3/32 to yield 1.83%.