U.S. Job Growth Is VERY Disappointing

Good day. What a glorious, near full moon, weather-wise weekend! I hope your weekend was grand. It was a disastrous weekend for my beloved Cardinals, as the wheels have fallen off that wagon. Sort of like what’s happened to all those rose-colored glasses wearing cheerleaders for the strong US economy…

It was the elephant in the room on Friday, so we might as well talk about it front and center this morning. In case you didn’t have a chance to check out the jobs jamboree on Friday, here is your update. US job growth slowed sharply in May, the latest indication that the economy has lost momentum.

Nonfarm payrolls grew by a lackluster 69,000 last month, the smallest gain in a year. The unemployment rate, obtained by a separate survey of US households, ticked one-tenth of a percentage point higher, to 8.2%, the first increase in nearly a year.

And remember that 115,000 job increase in April? It was revised downward to 77,000. Oh, you won’t believe this, or maybe you are “all in” on what the Bureau of Labor Statistics (BLS) does with the number. In either case, I’m going to give it to you, anyway!

The BLS added over 400,000 jobs in the past two months. So let’s see, using my new math, if we take 77,000 and 69,000 (which are bad enough on their own) and add them together, we get 146,000. But if we take away the 400,000 ghost jobs the BLS decided to add, the economy is actually losing jobs! 400,000 – 146,000 = a negative 254,000…

The markets decided that this was just too bad to allow the dollar to be rewarded, and immediately, the calls for more quantitative easing (QE) were heard, thus adding to the pressure on the dollar. Gold soared, silver tried to keep up and the euro (EUR) soared through the 1.23 handle, which it had lost the previous day.

For once in a blue moon, the focus was on the problems here in the US for one fleeting day of trading; the eurozone was on the back burner. I wonder how all those net shorts in the euro were feeling as the euro gained over 1 cent on Friday. For the record, net shorts in the euro as of May 29 had reached a record all-time level! Of course, the euro was born in 1999, so the time period is not that long, but still there were over 200,000 net short euro positions on May 29. I wonder how many there are now?

But that was Friday. What about the new week? The focus, albeit this is before the US opens trading, is back to the eurozone. Now it’s Spanish banks that are in need of a bailout. And the calls for a eurozone bond are still being heard. And every time a eurozone bond idea is mentioned and Germany rejects it, the euro gets hit. But as I write this morning, the euro is holding on to the 1.24 handle.

Funny, but the markets were really focused on what the Bank of Japan (BOJ) was going to do about the yen (JPY), which was very close to gaining to the 77 handle overnight. I think the markets have the BOJ on the run right now. Sure, the BOJ has a ton of yen reserves it could sell, but are their pockets deeper than the markets pockets? I don’t think so.

So no use in throwing away yen only to have the markets run the value right back up. But the BOJ is a central bank, and you and I know all too well that central banks do stupid things and never consider what the unintended consequences might be.

The other piece of data on Friday that was not up to grade for a so-called expanding, recovering economy was the ISM manufacturing index data, which showed a slowdown falling to 53.5 from the previous month’s 54.8 number. And we can’t forget the personal income and spending data, which showed us once again that we spent more (0.3%) than we made (0.2%).

US vehicle sales were not as strong as expected, and neither was construction spending in April, so you can see why the focus was on the US on Friday. But with only factory orders for April on the docket for today, that focus will be easily shifted back to the eurozone.

The Reserve Bank of Australia (RBA) meets tonight (tomorrow for them), and while I’m of the opinion that the RBA has overstayed its visit to the rate cut table, I do believe that they will cut rates again. Tonight? Maybe — the markets have marked down the Aussie dollar (AUD) in anticipation of a rate cut tonight.

Up in Canada, the Canadian economy’s data has been pretty consistent, with the final print of first-quarter GDP remaining moderate at 1.9%, which was unchanged from the fourth quarter. But the May RBC Canadian Manufacturing Purchasing Managers’ Index rose for the fourth consecutive month, to 54.7 from 53.3 in April, and May’s number represents the highest watermark since September 2011, when the period low of 50.6 was registered. May’s jump represented the strongest improvement since September 2011.

The Canadian dollar/loonie (CAD) gained with the other currencies on Friday, and is gaining an additional amount this morning. The moves are miniscule, though. The Bank of Canada (BOC) meets this week, and once again, all the promises of rate hikes will be left at the altar, and the BOC will leave rates unchanged. I’m sure the markets will be tuned in to see what the BOC governor has to say after the rate announcement.

Speaking of central bank meetings, we’ve already talked about the RBA and BOC, but the Bank of England (BOE) and the European Central Bank (ECB) will also meet this week, and Big Ben Bernanke will be making his trek to Congress this week to give his testimony on the US economic outlook. I doubt that Big Ben will even mention further stimulus — much less quantitative easing — in Congress, unless he wants to get grilled by Ron Paul!

I believe that we took a step closer to QE3 after the jobs jamboree last Friday, but I think there’s something else that the Fed has targeted over the years: stock prices. The S&P 500 closed below its 200-day moving average on Friday.

It’s like smoking pork: the digital probe in the meat might indicate that it’s done, but not yet. Seasoned smokers of pork know that you have to let it cook until it’s done and then cook it some more! QE3 is done; it just needs to cook some more. But if stock prices continue to get swamped, look for Big Ben to do something to save stock prices from the alligators!

And I have believed, still believe and will continue to believe that the Fed wants to own all the Treasury issues. I called for QE3 last year, and it’s taken a long time to get here, but expect an announcement by the Fed next week of an easing program very similar to QE1 and 2, in which the size and duration is announced.

The won’t call it QE3, but we all will know exactly what this is, and even though the Fed has been buying Treasuries all along by the truckload, the actual announcement of an easing program — whatever they decide to call it — will be a psychological event for the markets and should — as long as we follow the footprints of the previous two rounds of QE — put gold squarely on the rally tracks once again. Of course, I could be wrong about all this, and the Fed doesn’t come to the aid of stocks. What do you think they’ll do?

And how about that moonshot that gold experienced on Friday? Up $60 as I was leaving the office, and the shiny metal has held steady overnight, which is good, because I’m sure plenty a-trader was tempted to take a profit. Of course, with Friday’s run-up, the consistent calls for a higher gold price grew a little louder.

And as I look around, I did one of those “I could have had a V-8” head slaps. If you just look at deposit rate competition for gold, there is none, and with yields continuing to fall in both the US and Germany to levels that scream a Minsky moment, gold should be rallying just based on that!

Then There Was This… I read this story the other day, and my conspiracy blood began to boil! Now, as you read this, keep in mind that Egan-Jones Rating Co. has downgraded US debt twice in the past year…

“US securities regulators charged credit-rating firm Egan-Jones and its president, Sean Egan, on Tuesday with making material misrepresentations to the agency in its 2008 regulatory application to rate asset-backed and government securities.

“The Securities and Exchange Commission’s administrative charges, which were first reported by Reuters last week after a closed-door SEC meeting, also include allegations of record-keeping and conflict-of-interest violations.

“Lawyers for Egan-Jones have previously said they plan to vigorously defend itself against the SEC’s lawsuit.”

Chuck again. OK, if you have no conspiracy blood, then that whole story probably doesn’t do anything for you. But if you’re like me, and this kind of stuff is what gets you going, then I’m sure you enjoyed that.

To recap… The jobs jamboree numbers — just using BLS numbers was disastrous, and using Chuck’s numbers, they were UGLY! The other data that printed on Friday were also not of the recovering economy flavor, and for once in a blue moon, the focus shifted to the problems here in the US and not the eurozone. With the focus shifted, the dollar was sold and the currencies rallied along with gold. There are a ton of central banks meeting this week, and Big Ben gives his economic outlook testimony to Congress this week.

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

Visit: EverBank

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