HALLELUJAH, 11,000! Now watch out below.
Wall Street thought the employment report last Friday was so bad that it was worth pushing the Dow above the 11,000 level for the first time since Britney Spears was pure.
Well, if investors liked the crappy jobs growth in December they are just going to adore the horrendous number that will come out next month.
This is all about the investment community’s convoluted logic that a weak economic number like December’s disappointing 108,000 new jobs is a good thing because it will force the Federal Reserve to stop raising rates.
The experts were expecting twice that amount of new jobs.
As I mentioned in this column last week, several strange dynamics are at work here.
First, the Fed has hinted that it may be coming to the end of its misguided rate hike cycle. But as I also said last week – so what!
The financial markets didn’t pay attention when rates were being raised, so why will they be obedient now?
And the logic of rallying stocks in the face of economic weakness – especially this time around – is downright perverse.
Even under normal circumstances a weak economy is not good for corporate profits.
Stocks become less attractive when jobs are becoming scarce, income is weak, retail sales are mediocre, energy costs are high and one of our main industries – in this case, autos – is knocking on death’s door.
The government has already said – if you know where to look – that it will revise its estimate of the nation’s workforce down by 191,000 jobs in the benchmark revision coming out Feb. 3.
That means the 2 million new jobs in the last year that has made President Bush so proud – and been the main subject in his speeches last week – are really off by about 10 percent.
And even if there were 1.8 million new jobs last year (and I’ll explain in a minute why there wasn’t) that is still subpar for the 4.3 percent annual economic growth this country is supposed to be enjoying.
The 191,000 job reduction won’t show up in the headline number the next time monthly job figures are reported.
But this will. In January the government assumes, but can’t prove, that many companies closed following the Christmas season and eliminated jobs.
Last year the Labor Department assumed that 280,000 jobs were dropped by these dying companies and this year’s number should be similarly large.
If Wall Street is still feeling that bad economic news is good for stocks it will love the next report.
But watch out when the stock market finally sees the illogic in this position. [email protected]