Dear PGM Capital Blog readers,
In this weekend’s blog edition, we want to discuss with you the USA September jobs report, which came out on Friday, October 3rd 2014.
On Friday October 3rd at 8:30 am EST, the USA Bureau of statistics (BLS) reported that USA Economy has created 248,000 non-farm jobs in September 2014, which beats analysts’ expectations of 215,000, and that the unemployment rate fell to 5.9 percent, its lowest level since July 2008, as can be seen from below chart.
USA Unemployment rate 2004 – 2014
Based on these reports the DOW-Jones Industrial went up with 204 points and USD Index increased with one USD to close at 86.64, its highest level in four years as can be seen from below chart.
USD Index 5-year chart
UNDER THE HOOD OF THE SEPTEMBER-2014 JOBS REPORT:
The further one digs into the Friday October 3rd “blockbuster” jobs report, the uglier it gets.
The Labor force participation rate collapse to a 36-year low of 62.7 percent and Americans not participating to the labor force increased with 315 thousand to a record high of 92 million Americans not participating in the labor force as can be seen from below charts.
The September jobs data shows that the so-called blockbuster September 2014 jobs report was due to an increase of people in the 55-69 age group, which comprised the vast majority of the job additions in the month, at a whopping 230K.
On the other hand, 10,000 jobs were lost in the prime worker demographics, in the ages between 25-54 and whose work output is supposed to propel the US economy forward.
Please, see below chart for an overview of the job picture in September 2014 based on age demographics.
Below chart reveals also that the majority of the 236,000 private job additions fell below the median wage level In fact, nearly 47% of all the new jobs created in September occurred in the three lowest paying wage brackets, primarily in the retail and hospitality industries.
“The jobs in these lower-paying industries aren’t going to create the boost in consumer spending and borrowing that the USA Economy needs to get its economy humming again. Each month that we see that the USA Economy has added more jobs below the median line, will go into history as another month that delays a full recovery, of the USA, which currently is the world’s biggest economy.
PGM CAPITAL COMMENTS:
The above breakdown shows that the USA September employment numbers are nothing to call home about, the opposite is true.
The fact that the US-Dollar and subsequent USD-Index is at a 4-year high will hurt USA export, which will be a head wind for the USA, the US-Dollar and the USA capital markets.
The surge of people in their golden years, who should be enjoying their retirement, that are now searching for a job and are taking away jobs of the younger generation.
It is a warning sign when the number of people in the age group of 55 years and over that are currently back in the labor force hit an all-time record of 32.6 million jobs in September as can be seen from below chart.
Below Chart shows a breakdown of job gains by all age groups since the start of the depression in December 2007: 5.5 million jobs “gained” in the 55-69 age group, while on the other hand the core, of 25-54 demographics has experienced a decrease of 2.04 million people.
By no means can we call it a healthy recovery when the labor participation rate of US-citizens in their golden years, – who should be enjoying their retirement – currently is at an all-time high, while that of the people in the 25-54 age bracket – the core demography – is at a 28-year low, as can be seen from below charts.
Based on these facts of the USA jobs report and other economic data that came out in the week of September 29, 2014, we believe that there is a huge disconnect between the USA stock markets, the US-Dollar and the underlying USA Economy.
Due to this it is not IF but When will the Market see this and go through a painful correction of at least 15 percent to bring it in line with the real underlying economy of the USA.
The increase of the US-Dollar and subsequent tanking of Gold and other precious metals is based on the false expectation that due to an improving Economy and jobs data the FED will start raising interest much sooner.
The above mentioned demographic development in the USA labor market can be seen as deflationary and shows that we cannot speak at all of an improvement of the job data in the USA, and that any rate increase will worsen the situation and send the country straight back into an even harder recession than the one of 2007-2009.
Raising rates will have an upwards pressure on the US-Dollar, which will make USA goods abroad more expensive and will also make the USA less competitive as a tourist destination, which will lead to decreasing economic activities and loss of jobs in the country.
We therefore believe that due to the real state of the USA Economy it will be very difficult for the USA FED to raise rates in the near future and that the FED will most probably continue to stimulate the Economy directly or indirectly.
In the below video blog of Mr. Peter Schiff, the CEO of Euro Pacific gives an analysis and his opinion on the Friday, October 3rd USA jobs numbers, the USA labor market and the state of the USA Economy.
Based on these data we are currently using the oversold status of Gold and other precious metals to add them to our personal portfolio and at the same time we are shorting the USA Markets and the US-Dollar in order to profit from the coming correction in US-Equities and the US-Dollar.
Before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don’t move in a straight line and that the market can remain irrational longer than you can remain solvent.
Until next week.
Yours sincerely,
Eric Panneflek