The highly anticipated jobs report is out and it's just right. Prior months adjusted higher, the unemployment rate remains 4.9%, and we get a nice round 255k jobs number.
The numbers are 'just right'. Not too high, not too low, nothing to spook the market. Everything is perfect. But why are interest rates still historically low and/or negative. Why are Central Banks still expanding their monetary policy if everything is so good? Why is the Federal Reserve so scared to raise interest rates after nearly 8 years of keeping them near zero. Why are we now seeing a push for 'Helicopter Money' despite record high asset prices and a low unemployment rate?
The nonfarm payrolls climbed 255,000 in July, after an upwardly revised 292,000 gain in June (was 287,000), with May bumped up too to a 24,000 gain from 11,000 previously. The 3-month average gain is 190,000. The unemployment rate was steady at 4.9%. The labor force surged 407,000 following June's 414,000 gain. Household employment jumped 420,000 from 67,000. Earnings increased 0.3% from 0.1% previously. The labor force participation rate edged up to 62.8% from 62.7%. The workweek rose to 34.5 from 34.4.
Private payrolls climbed 217,000, with the goods producing sector adding 16,000, while construction rose 14,000, with manufacturing up 9,000. Jobs in the service sector increased 201,000. Government added 38,000. This is a much better than expected report all the way around, but Analysts with Action Economics noted it won't bring the Federal Open Market Committee "into the picture as soon as next month. But it definitely keeps a December hike on the table."
Clearly monetary policy is far from normal. Interest rates have gone negative in some parts of the world. A truly stunning development and yet another creation by our 'all knowing' central banks. I wrote about this last week as well:
Keeping interest rates at historic lows helped fuel the housing bubble.
http://www.rollingstone.com/politics/news/how-alan-greenspan-helped-wreck-the-economy-20110616
The housing bubble didn't pop until rates started to rise and those looking to refinance adjustable rate mortgages could not afford to do so. It took a few years after the rate hike cycle began for the bubble to pop, but the ultimate trigger was higher interest rates and an inability to refinance at a low rate.
Perhaps the stock market isn't a bubble, as most say, but one thing I am sure of is we have another debt bubble and it is based upon the same Central Bank policy from the internet bubble... low interest rates.
Corporate debt continues to surge. And with interest rates set to stay at these historically low levels for quite some time, corporations will continue to utilize this cheap money to fund share buybacks and dividends.
As long as interest expenses remain low, the cost to fund shareholder payouts is less than the ultimate payout, which is why corporations will continue to handout money to their shareholders.
Down the road, if interest rates ever rise again, and let's assume they will at some point, all the debt taken on at these historic lows will be a lot more expensive to service. Interest expenses will go up, profits will dive, shareholder enrichment will come to a screeching halt... but we need to see interest rates rise. At this stage most Central Banks are contemplating MORE measures, not cutting back. It's conceivable this asset price manipulation scheme orchestrated by every Central Bank in the World could go on for many more years. At which point Central Banks will be the majority holders of all corporate and sovereign debt.
Clearly the Pandora's Box has been opened. The parabolic rise in corporate debt may never end as those with an unlimited credit card and a zero payment policy can spend their way out every roadblock.
This is why every dip in the market gets bought. And why their is a very good chance this bull market is still in the middle stages of the ball game.