Over-Hyped Oct. Jobs Report Does Not Assure Dec. Rate Hike – Schiff Report

  • Friday, November 6, 2015
  • Earlier today the government released the Non-Farm Payroll Report for the month of October
  • I was told that this was the most import Non-Farm Payroll report ever
  • They were looking for 190,000 jobs and we created 271,000 jobs
  • Everybody now has jumped to the conclusion that a December rate hike is a lock
  • There is nothing in this jobs report that indicates that
  • The reason everybody believes that the Fed is like to raise rates is because Janet Yellen testified before Congress earlier in the week
  • This is what the Fed Chair said about interest rates:
  • If we get further improvements in the labor market and we make progress at achieving the Fed’s inflation goal of 2% in the medium term
  • How much improvement and what kind? We don’t know, because thus far, no improvements have been enough to prompt a rate hike
  • Yellen said that if we got those improvements, then a rate hike in December would be a “live possibility”
  • This does not mean it will actually happen – it means it is possible
  • She did not even use the word probable
  • I don’t think the Fed is going to raise rates in December
  • We have one more “most important” jobs report between now and December and this month’s numbers may be revised down, as others have
  • From my perspective, if the Fed does not know that they will raise rates by now, they will not decide on the spur of the moment after a jobs report
  • Even with positive economic news, the Fed still does not have to raise rates; they can come up with another excuse, real or unreal
  • What happens if the stock market declines after a rate hike? what would the Fed do then?
  • “Extend and Pretend” is working like a charm for the Fed now
  • Getting back to today’s job’s report:
  • This is the strongest month of the year following the two weakest months of the year
  • Both of those months arrived with expectations of upward revisions, and they did not happen
  • The three month average is 187,000 jobs
  • The last three months have been slower than any prior three month period this year
  • Last year, the 3-month average was about 250,000+ jobs
  • So the job market is much slower this year than it was last year when the Fed was looking for “more improvements” before raising rates
  • The unemployment rate did decline, but so far no positive data on unemployment rates have prompted the Fed to raise rates
  • The Labor Force Participation Rate stayed at 62.4% which matches the low of this so-called recovery
  • So we are not seeing more people entering the labor force
  • This is not a sudden accelleration in the pace of job growth
  • Let’s look at the quality of the jobs:
  • Most of the jobs, about 200,000 of the 271,000 jobs added are low-paying service sector jobs
  • In second place, at 45,000, is temporary help
  • Third place, at 44,000, is retail trade
  • The fourth largest category is leisure and hospitality
  • Manufacturing, mining, logging, transportation sectors lost jobs
  • Where it really gets bad is in the demographics:
  • All job gains went to people 55 and older
  • People under the age of 55 lost 35,000 jobs
  • If you look at the gender, men from 25 – 54 lost 119,000 jobs
  • What would explain this?
  • Older people can no longer afford to be retired, and are supplementing their retirement incomes
  • Some of the older people are taking better jobs because they are more experienced
  • Why are more women getting jobs?
  • Women who were previously homemakers also need to supplement their incomes
  • When you look at the demographic numbers, it is further proof that the Fed’s explanation of the labor force participation rate is wrong
  • The Fed claims the participation rate is due to retiring Baby Boomers
  • The people who should be buying houses are the younger ones who are not getting jobs
  • Freddie Mack reported its first quarterly loss in 4 years
  • This is with rates still at zero
  • Imagine the losses if the Fed raises rates?
  • Also later in the day today, the government reported a record increase in consumer credit led by auto loans and student loans – two more bubbles!
  • The U.S. government now holds almost a trillion dollars in consumer-backed loans, fueled by the Fed’s cheap money
  • Why would the Fed want to prick that bubble?
  • The markets once again were fooled by the Fed, they got this jobs report
  • The dollar soared almost back up to 100
  • Gold tanked below 1100
  • When the Fed didn’t raise rates in October, gold was at 1190 so it has dropped about $100 since then
  • All this happened just because of a mere possibility
  • This is what the Fed wants to achieve
  • It was interesting, though, that the markets did not sell off
  • I would not be too complacent – the Fed may not be able to convince everybody that rates are going up
  • Some feel the Fed might raise rates, but later cut them again based on the data
  • That might be a very dangerous line for the Fed to walk
  • If the Fed were to raise rates, it would accelerate the schedule for cutting them again, and increase the possibility of QE4
  • It is better for the Fed to keep pretending they will raise rates, and then don’t do it

Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, and host of the Peter Schiff Show Podcast.

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