At this point, you may have a better chance predicting a coin flip than gauging the next move for the U.S. economy.
Conflicting signal after conflicting signal continues to mount, which does nothing to provide firm insight into the next move by the Federal Reserve. The latest conflicting signal came today with a July's jobs report that contained all sorts of positives for those long stocks based solely on an optimistic outlook for global growth.
Positive surprises amidst the doom and gloom headlines of late:
- A nice thumping of consensus expectations. Granted, expectations have been walked down in recent weeks following the dismal May jobs report and softer reads on auto sales. Nevertheless, it's good to get a beat in the wake of the horrible read on second-quarter GDP.
- May's tough-to-stomach jobs figure was revised up to 24,000 from 11,000. Not exactly blowout stuff here, but coupled with a slight upward revision to June, one gets a picture of a U.S. economy not falling off the cliff during a presidential election season and in a post-Brexit world.
Despite the clear positives of the report, it did contain its fair share of negatives. For example, part-time employment continues to be steady (ideally, you want to see part-time employment go up as a sign businesses are being overwhelmed with new orders) and the labor force participation rate remains stuck in neutral (thanks, retiring baby boomers). Meanwhile, job growth has cooled in the restaurant space, which makes sense in light of series sales slowdown in the second quarter at McDonald's (MCD) , Starbucks (SBUX) and others. Wage gains, for lack of better words, suck and are causing households to cut back on discretionary purchases as costs for auto insurance (my auto insurance just went up 36% and Geico tells me the increase was due to an increase in their costs) and healthcare continue to skyrocket.
All in all, the weekend newspapers are likely to be more of the upbeat nature. Surging Hillary Clinton should have some good economic messages to trumpet during campaign rallies, while plunging Donald Trump will do his best to highlight the minor negatives in the July jobs report. The Fed will likely need to see the August employment report before deciding on rates. If anything, the July numbers set expectations for an improving round of macro data this month that could lead the Fed to raise rates at its next meeting.
But I have to caution that there is more going on in the U.S. economy than housed in the July jobs report. People are really struggling, which helps to explain why Corporate America is slogging through second-quarter earnings season. Not sure about you, but outside of a Facebook (FB) or Google (GOOGL) no company has truly impressed me with its earnings reports. I think the below comments from Harley-Davidson (HOG) CEO Matt Levatich, which he made to me last week via phone, captures the mood inside of many U.S. households and underscores why companies are not earning as much as they should be in this point in the U.S. recovery (and are once again enacting sweeping layoffs).
"If you look at some of the big company earnings from the second quarter and actions they are taking -- such as Caterpillar -- layoffs, plant closings, all tied to the mining industry," Levatich said. "You have Joy Global based here in Milwaukee potentially being bought out by Komatsu, and as a result there is an unknown as to what will happen."
"The consequence of prolonged cheap oil on the oil industry, the supplier to the oil industry, the steel pipe industry, the mining industry -- these are companies that have a lot of capital investment and a lot of high-wage jobs that are continuing to cut back," he said. "If you look at unemployment rates, they are low, yes, but then you step back and look at things and it feels very cautionary."