God bless us all for trying. Today’s non-farm payroll number is awaited with excitement by banks who have seen the quietest August in years; by hedge funds desperate to turn a difficult year around; and by journalists keen for copy. More kindly, we might add central banks to the list, given they are data dependent and the data thus far has proven unhelpful. That’s what has become so trying for all of us: we are not in a normal economic cycle, so we can’t be in a proper hiking cycle. We can’t talk sensibly about inflation/unemployment trade-offs, or consumption vs saving, when the world just doesn’t work like that at the moment. Perhaps it doesn’t work like that full stop any more. The severe debt blow-up caused by the credit crunch has left consumers with an unusual predilection for excess saving, and banks with an inability to lend. We might have been able to get through that, with animal spirits sufficiently restored to their Keynesian best, if it hadn’t been for the sudden oil price fall. That kept a lid firmly on inflation, led to further and extended central bank easing, and ended up with bubbles forming in financial assets.
So, what if we do get a good payrolls number today? Employment has been on a tear in the US for years, full employment is approaching, and yet growth and inflation remain anaemic.
OK, you might argue tersely, but it would mean the Fed are going to hike! Like, now! Or maybe December! But soon! Let’s not worry about the long-term macroeconomic view, we can trade off the back of this!
Ah but my friends if that’s the case, then won’t today be a case of Buy the rumour, sell the Fact, and actually a good number would then take the USD lower?
Blondemoney doesn’t like arguments, dear reader, so let’s settle this like grown-ups. Get yourself a whisky on the rocks and check out this chart:
It’s the US ISM index, one of the longest running indicators of the strength of the US economy. Yesterday we found out that it fell below the 50 boom-bust line. Note that it did the same at the end of the last year, and the Fed still hiked; but also note that it has struggled to stay above 50 ever since.
So, get excited about payrolls if you must. But don’t lose sight of the bigger picture.