Janet, You Got Some ‘Splainin’ To Do!
June 6, 2016
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
We had perhaps the lowest guess on The Street on Friday for this number, calling for only 125,000 new jobs to have been created and saying too that “We could…possibly… see something as low as 115,000… and everyone should be prepared for that initial shock.” As we put forth those figures, we received several responses suggesting that we had lost our bearings economically and in retrospect rather obviously we had for despite the fact that we were amongst the very lowest on the Street we still missed the number by a full 100,000 when it was reported out at +38,000!
We liked the initial response by our friend, Mr. Steve Liesman, of CNBC, to the report when he said “We seem to have lost a digit somewhere” for indeed at least… AT LEAST!… 100,000 jobs were lost when the actual number was compared to The Street’s consensus expectations. Further, all aspects of the report were dismaying, beginning with the truly material downward revisions in the previous two month’s data. As we have said for years here in TGL, in most economic data points it is the “Direction of Revision” that is more important than is the fresh data itself, for in periods of economic weakness all data…or at least most data… is revised for the economic worse, while in periods of economic strength the reverse is of course the case. That said, last month’s non-farm payrolls were revised downward from +160,000 to 123,500 and the previous month’s number was revised downward… again… by even a bit more.
Private payrolls were revised down from +171,000 to 130,000 and the new month showed growth of only +25,000… a “miss” ty the consensus of 125,000! Average hourly earnings were expected to have risen by +0.2% and at least that was matched by the report itself, but there had been hope that the number of hours worked might have risen even as non-farm payrolls were expected to have risen sharply too. They did not: average hours worked rose only as expected and that too was therefore a disappointment.
Let’s not mince words here: this was a devastatingly bad report. There is nothing in it that can be spun into something positive suggests when labor conditions turn for the worse they do so over a broad period of time. This chart then has the look of that sort of broad “topping” out. Any… and we mean ANY… thoughts of a June increase in the O/n Fed funds rate has been taken out behind the barn and shot… several times until thoroughly and completely dead. Further, thoughts of a July rate increase may not have been shot and hit, but certainly they’ve been shot at and perhaps even badly “winged.” Dr. Yellen, with her own economic center of gravity being her expertise in employment, has in the immortal words of Desi Arnaz “Some ‘splainin’ to do.” Dr. Yellen will be given the opportunity to “’splain” the data later today when she speaks at a World Affairs Council meeting just after noon in Philadelphia today. We wish her well.
Turning to the metals markets, no one anywhere should be surprised by the fact that gold is higher, although some may take issue with the seriousness and the size of that strength. However, and very simply put, the employment report on Friday, as noted above, not only took any thoughts of tighter monetary policies off the table from the June FOMC meeting, but has almost certainly taken those same thoughts off the table from the impending July meeting also. Indeed, there will be thoughts argued that further easing, rather than potential tightening, is the order of the day. We’ll take issue with that latter thought, but we’ll wholly agree with the former two.