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STRONG JOBS REPORTS LIFTS DOW, S&P TO NEW HIGHS
Friday’s report of better-than-expected job gains in July lifted the Dow Jones Industrial Average to close last week up 0.4 percent to 35,208 and pushed the S&P 0.2 percent higher to finish at 4,436, both new record highs. (See related story.)
The tech-heavy NASDAQ slid 59 points, or 0.4 percent, to 14,835.
The economy took on an additional 943,000 workers last month, cutting the unemployment rate from 5.9 percent to 5.4. Also, June’s jobs report was revised upward to 983,000 new jobs.
The leisure and hospitality sector hired 380,000 workers, about 40 percent of July’s total job gains. Wages in that sector rose 10 percent in July, year over year, underscoring the shortage of workers willing to take on low-wage jobs. Many employers in restaurants and hotels are offering hiring bonuses to secure enough workers to fill out shifts.
The sector still holds 1.7 million fewer jobs than in February 2020, almost a third of the 5.7 million jobs the economy has yet to bring back.
The strong economy drew sidelined workers back to the job, according to the labor department; 67 percent of July’s newly employed workers had not been working or actively seeking work, making July’s shift the largest since the COVID War began.
The movie and audio recording industries still have 30 percent fewer workers than in February 2020; performing arts and spectator sports are short 22 percent of their previous workforce according to the Wall Street Journal.
New claims for unemployment payments ticked down to 385,000 in the most recent week from an adjusted 400,000 the week before; new claims have continued to hover around 400,000 for several weeks.
However, in the week ending 24 July, continuing claims dropped to 2.93 million, the lowest since March 2020.
Wages rose 4 percent throughout the economy last month, an indication of a labor market in which employers need to compete for talent in virtually every sector. (See “Historic Labor Shortage: 42% of Biz Can’t Fill Open Positions,” Trends Journal, 20 April, 2021.)
The jobs bonanza is fueled by a combination of government stimulus, an increasingly successful vaccine campaign, and consumers satisfying pent-up demand, and floods of cheap money pouring into the system.
Fast Slowdown
As we have reported, New York City is mandating proof of vaccination for people to enter restaurants, gyms, and other public gathering places. If such policies spread widely, which we quote New York City’s mayor claiming they will, it will hobble consumer spending and slow both job gains and the broader economic recovery.
TREND FORECAST: Should job numbers and the economy weaken in the coming months, the central bank will keep buying bonds into next year and will not raise interest rates in 2022.
Although the labor market is trending stronger, it still contains an undercurrent of chaos: manufacturers are unable to find enough skilled labor to fill jobs, while workers in services and entertainment are eager but not finding work.
The Fed is aware that the jobs market is likely to stumble over any hike in interest rates. As a result, the central bank’s task now is to balance the job market’s recovery against the need to throw a net over inflation by raising interest rates.
If June’s and July’s strong job gains continue in August and September, that will improve chances that the Fed will raise rates before 2023, as we have previously forecast. (See “Fed Holds Firm on Policy Despite 5-Percent Inflation,” Trends Journal, 20 July, 2021
The Real World
Ignoring the constant drumbeat of Delta variant fear and hysteria being spread by the mainstream media, and the increasing COVID restrictions governments and businesses are imposing upon the public—such as wearing masks, proof of vaccinations to attend events, restaurants, go to gyms, college, travel etc., that will slow down economic growth—the markets instead focused only on July’s jobs report.
And while precious metal prices tumbled on the strong jobs report, since a steady economic rebound would cause the U.S. Federal Reserve to raise its artificially low interest rates and curtails its $120-billion monthly bond purchases… equities keep rising.
Again, what has driven the equity markets to continually hit new highs since the COVID War began in full force in February 2020 has zero to do with economic fundamentals.
With much of the world locked down from much of last year, with the exception of hi-tech that benefited from people being forced to “shelter-in-place,” equities should have crashed. The facts show, however, they were artificially propped up when The Fed and Washington began pumping trillions of dollars of cheap money into the system with bond buying schemes, near zero interest rates and stimulus programs in late March of that year.
What’s Next?
Indeed, while July job numbers are up in the leisure and hospitality sector, which hired 380,000 workers and accounted for 40 percent of July’s total job gains, the COVID War 2.0 will hit this sector the hardest. Thus, we forecast the unemployment number will begin moving up from August through at least November.
Employment may rise in December as workers are hired for the Christmas season rush, but that may be tampered down should governments and businesses continue to escalate draconian COVID rules you must obey.
Also, as we note throughout this and previous Trends Journal editions, history is repeating itself.
Go back to March 2020 when much of the nation was put in lockdown. What did the politicians say, “It was only temporary…we had to flatten the curve.”
And what did the masses say when businesses were shut down and the streets were empty? “It’ll come back.”
It did not come back. The office occupancy rate in the U.S. is well below 40 percent and some 25 percent of the hospitality sector, as we reported, is in depression.
And back in 2020, the word on the Street was “We’ll be back in the office after Labor Day.”
They were saying the same thing just a month ago, and now that has changed as we have detailed in this Trends Journal (See, BLACKROCK AND WELLS FARGO ANNOUNCE A DELAY IN RETURN TO THE OFFICE) and previous articles. More people will be working from home and many companies are postponing their post Labor Day office openings.
What is not reported by the Presstitutes and ignored by politicians are the interconnected negative socioeconomic and political trends that will result from these decisions.
The Markets
While the Dow fell 106 points yesterday and the S&P 500 slipped just 0.1 percent, the tech-heavy Nasdaq squeaked up 0.2 percent.
Today, on the news that the U.S. Senate would pump more cheap money into the system with its $1 trillion infrastructure bill, the Dow and S&P 500 hit new records, closing up 162 points and 0.1 percent respectively. The Nasdaq fell 0.5 percent.
GOLD/SILVER: Both precious metals were stuck in their month’s long trading range of around $1,820 per ounce for gold and $25-$26 per ounce of silver. However, they had a sharp sell-off following Friday’s news of soaring job numbers with gold now at $1,730 per ounce and silver at $23.34 per ounce.
As we have noted, if precious metals were knocked back over expectations that the Fed would taper its bond buying scheme and raise interest rates because of strong job numbers and expectations of solid economic growth… so too should have the equity markets sharply declined, since they have been artificially pumped up with cheap money.
Now, with fear spreading of the Delta variant and the negative impact it will have on economic growth, we forecast the Federal Reserve will do all it can to keep interest rates low, which will in turn increase inflation… which is bullish for gold and silver.
In addition, as economies sink lower, governments will pump more money into the system to continue to artificially inflate it. Thus, the more cheap money printed, the lower the value of the currency and the higher safe-haven assets rise.
OIL: Once again, what goes on in the rigged equity markets has next to nothing to do with reality. As we noted, they continue to go higher on expectations despite strong job numbers and fears that the Fed will raise rates and taper their bond buying because the strong job numbers signal strong economic growth.
That’s not what the oil barons see ahead. Over fears of the Delta variant lockdowns and China importing less crude in July than in June, yesterday Brent Crude fell to $69.04 per barrel.
Bullshit Has Its Own Sound
That was yesterday.
Today, Brent shot up $2 per barrel because, according to CNBC, “Oil prices rose … as rising demand in Europe and the United States outweighed concerns over an increase in COVID cases in Asian countries.”
To us this statement makes no sense. The new rounds of government and business COVID restrictions that we have noted in the travel, hospitality, restaurant, events and other sectors will slow down economic growth and in turn lessen demand for oil.
BITCOIN: Bitcoin is up some $6,000 from last week, trading at nearly $46,000 per coin. It had sunk below $30K two weeks ago. We maintain our forecast for Bitcoin to dive deeply if it goes below $25,500 per coin and spark sharply if it breaks above $50K per coin.
We also maintain our forecast that bitcoin and other crypto currencies will rise if there is little government control to regulate them. Thus, the more regulation, the lower the value of the coins.
For more on bitcoin and other cryptocurrencies, please see our Trends in Cryptos section.