May Jobs Report and the Fed
As you’ve probably heard on the news, the May 2016 jobs report was “disappointing”, “concerning”, and a “surprise”, or at least those were the words used by Federal Reserve Chairwoman Janet Yellen. In fact, May’s job creation was the worst since 2010. And, while you might hear the 4.7% unemployment figure bandied about, there’s been considerable pullback in touting this number. Even mass media are now outlining what I’ve been saying for years, which is that the government statistics are unrealistic, though I’d call the numbers plagued with deception. There are actually six different unemployment statistics provided by the Bureau of Labor Statistics. However, I recommend persons look at the “Employment” rate for a better statistic, which is hovering at 59.7% at the moment. The Wall Street Journal has compiled a series of such alternative statistics in a recent article, The May Jobs Report in 12 Charts, but what does all this really mean regarding the economy, the Fed, and what you should be mindful of?
The Federal Reserve Bank was formed in 1913 with the purpose of stabilizing the monetary and financial systems. And, while the Fed has continued portray itself as proactive, it has become mostly reactionary. So, despite all its hints of a June rate increase up until a few days ago, I’d be very surprised if we see any change in rates. In fact, I’d classify Yellen’s comments this week as strong backpedaling. Will the Fed raise rates again this year? I think they will take every opportunity they can to raise rates as much as they can as soon as they can. I say this because the Fed wants to be able to lower rates during the next crisis without having to go negative. To do that, they have to get rates up from where they are now. But, what should you really keep your eyes on?
Well, obviously the economy is still very shaky. But, its important to distinguish between the markets and the economy. I would anticipate continued volatility over the short-term in the markets. But, the US economy is not the only place to be watchful. Europe has several, major socio-economic factors coming to turning points in June. Britain will have a vote to potentially exit the Euro on June 23rd called Brexit and polling indicates the voting will be very close with a slight lead projected at the moment for “Remain”. But, depending upon the outcome, you could see the Prime Minister David Cameron exit as well. And, Britain is not the only country potentially looking at major issues in late June/July. Spain has a major election on June 26th that could greatly impact its economic outlook. Furthermore, Greece faces major debt payments of over ~$11 billion in June and July of 2016. And finally, France is having major issues with strategic fuel reserves. In mid-May, the French government estimated it had 115 days of reserves left, but the issue is more about logistics and as summer fuel demand increases, this could be another major economic issue to contend with.
So, what should you do? Make sure you are prepared for potential volatility ahead. It is impossible to predict the outcomes of major economic drivers, much less how the market will react to such drivers. But, make sure you position yourself and your portfolio proactively, so that you can be comfortable with the outcomes whether the market goes up or down and whether those moves are a little or a lot. If you’re unsure of how you want to do that, meet with your investment professional to discuss these impending issues or give us a call, 877-5WEALTH.