U.S. Job Numbers for January:
What They Really Say

The real story behind the U.S. job report numbers, released by the Labor Department on Friday.I look at the U.S. job report numbers released by the Labor Department on Friday, and I just need to laugh inside. It was a terrible report. But the news media didn’t see it that way. Most news sources said that the stock market was rallying on Friday due to the strength of the job report numbers. Rubbish.

Here is the real story behind the job numbers:

The official unemployment rate in the U.S. fell from 9.4% in December to 9.0% in January. This is the figure that got the media all excited.

But the reality is that the unemployment rate didn’t go down because more jobs were created; it went down because people stopped looking for work. People discouraged from finding employment and not actively seeking work are not counted as unemployed in the official calculation.

Only 36,000 new jobs were created in January, the smallest gain in four months. Employment analysts were predicting well over 100,000 new jobs for January, a far cry from what was actually reported.

During the recession, the U.S. lost about nine million jobs. A devastating number no matter how you slice it. We are far from recovering that tragic loss of jobs, and I’m simply in the camp that believes we will never fully recover from those job losses.

After years of following how the Federal Reserve sets interest rates policies, I doubt that the Fed will want to raise short-term interest rates until it sees consecutive months where jobs created are equal to 150,000 or more. Hence, the Federal Funds rate may stay unchanged (near zero) all year long, which will conflict with rising long-term interest rates (see “Michael’s Personal Notes” below).

In my humble opinion, January’s job report number is just more evidence that we are far from “out of the woods” with this economy…that maybe the stock market is getting a little ahead of itself…that cuts in government spending could be more a fantasy than reality… that in our desperate effort to create jobs will come the broad-based damage of higher inflation and higher interest rates.

Michael’s Personal Notes:

Finally, a news source has picked up the surge in long-term interest rates. From Bloomberg on Saturday: “Treasury 10-Year Yield Reaches a Nine-Month High as Recovery Builds Steam.”

Since November, I’ve been writing extensively about the rise in long-term interest rates, as few events can impact the stock market or economy to such a degree as higher interest rates can. While the Federal Reserve has kept the benchmark Federal Funds rate near zero since December of 2008 (what I would call a desperate Great Depression type of tactic), long-term interest rates have been moving sharply higher.

The 10-Year U.S. Treasury opens this morning at 3.65%, the highest level since May of 2010. My prediction is that we will soon see the 10-Year Treasury at four percent, bringing it to a new post-recession high. Obviously, as interest rates rise, the price of bonds comes down. I’ve been begging my readers to get out of bonds since the summer of 2010—hopefully most heeded my suggestion.

What do rising long-term bond yields mean?

They can mean three things (or a combination of the three). Firstly, the bond market could see U.S. economic growth get better over the long term. Secondly, the bond market could be predicting higher inflation ahead. Or thirdly, the bond market could be pricing in higher rates on U.S. Treasuries (basically government debt), as foreigners demand greater return on their funds, as they see the greenback going down or U.S. national debt becoming a problem in the months and years ahead.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this morning up 4.5% for 2011. I’ve been quite steadfast that, in the immediate term, stocks will continue to rise, while, for the short to long term, I’m turning bearish on stocks. I have no reason to change that opinion at this time.

Unless I see the Dow Jones Industrials breakthrough the 14,164 level, I continue with my opinion that the stock market rally that started in March of 2009 is in the confines of a bear market. Enjoy the stock market profits while they last!

What He Said:

“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi in PROFIT CONFIDENTIAL, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.