Competitive Intelligence

Weak Employment Report Puts Recovery in Question

As you've probably heard by now, job growth news was out today and it was awful, leading most to decide the economy has definitely not "turned the corner" and John Kerry to claim it's making a u-turn.

After expectations of Wall Street analysts that the economy would add 240,000 jobs in July, the news fueled a predictable sell-off in securities as we all wondered what was driving prices higher even as people have supposedly less buying power.

Well, rising energy costs, for one, is being driven by fear and uncertainty, not any real supply and demand dynamics. The real question is, will the Fed raise interest rates again?

Sensing that the Fed might now back off additional rate increases, investors Friday bid up prices of Treasury notes and other government securities, which caused their interest rates, or yields, to fall. Ironically, lower rates tied to the weak job growth might help stimulate the economy further. That's because more people could jump into the market for mortgage loans, either to buy a house or to refinance their existing mortgage.

More interesting, the Labor Department's so-called Net Birth/Death Adjustment tabulates July as one of only two months in which there are more companies dying and taking jobs away than creating new jobs. The other month is January, when Labor takes out a massive number of jobs because it assumes a large number of companies die off after Christmas.

As a result of this cyclical phenomenon, it could've been reasonably predicted that, unless there was truly staggering growth in July, job growth would probably be flat at best.

I guess it pays to "run the numbas".

- Arik