JOBS REPORT SPURS DEBATE ON HEALTH OF THE ECONOMY

Stocks opened modestly higher this morning (Dow +70 pts; SPX +.14%). Small gains are broad-based across consumer-facing sectors, as well as financials, healthcare, industrials, materials and real estate. Only utilities, communication services and tech are left out with small losses. Commodities are trading lower. WTI crude oil fell back to $55.70/barrel; copper fell .5% and iron ore is down something like 3%. Only gold (+.14%) is higher on the day. The bond market is modestly higher in today’s trade. The 10-year Treasury Note Yield is unchanged at 1.55%. Bonds have done well this year due to the sharp decline in rates. The iShares 20+Year Treasury Bond ETF (TLT) is up nearly 20% and the iBoxx High Grade Corporate Bond ETF (LQD) is up 13%. And in case you’re wondering, no it is not normal for both the stock and bond markets to post 10-20% returns over the same 8-month period.

The Bureau of Labor Statistics released its monthly Employment Situation Report today. The economy generated 130,000 net new jobs in August, a bit less than economists projected. And prior month payrolls were revised slightly lower to 159,000. Apparently, a good chunk of last month’s job growth was government hiring for the census. That was the bad news. The details of the report were much more encouraging. The unemployment rate held steady at 3.7%, a generational low. On the other hand, the under-employment rate ticked up to 7.2%. That figure, combined with the fact that the labor force participation rate improved to 63.2%, means more people are coming off the sidelines and actively looking for work. Other positives include the fact that the average work week rebounded to 34.4 hours, and average hourly earnings rose 3.2% from year-ago levels (vs. 3.0% expected). So while this report does NOT suggest the economy is headed into recession, it probably wasn’t strong enough to deter the Federal Reserve from cutting interest rates again soon.

Nevertheless, the jobs report gave ammunition to both the bulls and bears. The chief investment strategist at Brown Brothers Harriman was quoted by CNBC as saying, “If we weren’t already talking about recession risk and already looking for signs of a slowdown, we wouldn’t start today because of this jobs report. On balance, I come down on the optimistic side.” On the other hand, Deutsche bank economists say this is proof that US payroll growth is slowing and concludes that falling rates in the bond market are a red flag signaling further deceleration in the economy. Bloomberg economists are right in the middle of the two camps, judging that the “report shows that the domestic economy is weathering headwinds from trade tensions and economic uncertainty, but also showing signs of strain.”


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