by Ivan Martchev

June 9, 2020

I saw a political ad touting “the greatest jobs report ever” on the day the May jobs report came out. It sounded so out of touch that I decided to look a little more closely into the numbers, and the closer I looked the more out of touch the ad sounded. There were too many asterisks; I can only name a few.

The actual press release states some of the problems:

“However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.”

“If the workers who were recorded as employed but absent from work due to ‘other reasons’ (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally-adjusted basis).”

That alone says the May unemployment rate was higher than the reported headline by three points.

United States Continuing Jobless Claims versus United States Labor Force Participation Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

We would all be very happy if everyone that lost their jobs due to the pandemic shutdown is rehired immediately. That probably won’t happen right away, even though there has been some rehiring. The U.S. Continuing Jobless Claims, not the initial jobless claims, is what hinted at a better-than-expected jobs report. Continuing jobless claims were 1.7 million in March, rising to over 25 million May 9 but falling to 21.5 million in the latest week. Continuing jobless claims should be closely watched in future weeks.

There is rehiring, and there will likely be more as states reopen, but I don’t think anybody expects the “continuing claims” number to be cut in half very swiftly. Also, a lot of people (most likely close to retirement) chose to leave the workforce as they thought it would be too hard to find work in the present environment. Those people are not unemployed, but they did help cause the labor force participation rate to fall to 60.8% at last count, while it was 63.4% in February, before the pandemic started.

I think the volatility of economic data will remain very high as the reopening progresses, so one has to be careful not to read too much into one number or the other. The trough of this unusual economic cycle will be in the second (present) quarter, but the rebound, in my opinion, will be uneven.

The Surreal Positive Correlation Between Gold and the Dollar Continues

“Back in the day,” as they say, the normal thing to expect when the dollar was selling off was for gold to be rallying and vice versa. In the brave new world of quantitative easing, the opposite is true. Both gold bullion and the dollar were down in the past week as there was further recovery in global stock markets.

United States Dollar Index - Cash Settle Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

If the Fed is so vigorously trying to prevent a dollar short squeeze and has inflated its balance sheet at the fastest pace ever, one would expect the dollar to ultimately go lower, but I think the weak dollar story would be more of a 2021 or 2022 headline, not so soon, in 2020.

Central Bank Euro Assets versus Total Assets Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It has to be noted that the Fed balance sheet is growing at a rate much faster than that of the European Central Bank (ECB). The ECB balance sheet is growing too, but its much slower growth rate implies a slower growth of electronic euros in the ECB financial system. Inversely, a much faster rate of growth of the Fed balance sheet implies a much faster rate of growth of electronic dollars in the U.S. and global financial systems. More dollars compared to fewer euros means a depreciating dollar, all else being equal.

Still, it would appear that a mean reversion would be a more likely scenario in the next couple of weeks, so one should look for a rebound in the dollar, rather than further weakness – at least in the short term.

All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Countless Asterisks in the Non-Farm Payroll Report

Sector Spotlight by Jason Bodner
After Record-Setting Buying, The Top May Be Near

View Full Archive
Read Past Issues Here

About The Author

Ivan Martchev
INVESTMENT STRATEGIST

Ivan Martchev is an investment strategist with Navellier.  Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev

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