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Ugly Jobs Numbers — When Bad News Is Good News

The U.S. economy added 169,000 jobs in August, according to Friday’s jobs report, which was slower than the average pace of the last year and missed expectations. The icing on the cake was that both June and July numbers were revised lower after the Department of Labor report.

Sure, the unemployment rate fell to 7.3% and stocks popped a bit … but should we be happy?

Objectively, probably not. Today’s jobs report shows fewer jobs being created, 312,000 people dropping out of the labor force because they gave up hope, a focus on low-paying service jobs and part-time work, and revisions to past growth that hints things haven’t been nearly as strong as we thought they were.

But — BUT! — there is a silver lining.

The Federal Reserve has been talking about decent growth indicators that imply it has license to pull back on quantitative easing and “taper” its stimulus policies as the U.S. recovery becomes self-sustaining. The bad news kind of blows a hole in the argument that the market and the economy can expect to get by without the Fed’s help.

So bad news is good news, in so far as it all but forces Ben Bernanke & Co. to cease with the taper talk and keep the pedal to the floor. At worst, September will see a mild taper but nothing meaningful since the economic indicators do not reflect a U.S. economy that is standing on its own two feet.

Obviously the best thing for stocks is for the economy to hum along without Fed interference. But given the choice between a sputtering economy on its own and a sputtering economy with a big Fed stimulus behind it, investors are happy to be saddled with the latter instead of the former.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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