WALL Street is expecting the government to announce fairly strong growth in jobs tomorrow. And it might be just unlucky enough to get it.
I say “unlucky” because the worst thing that could happen right now is for the economy to show enough growth to allow speculators to drive interest rates higher.
While the prospect of a healthier job market might make people feel a little better, the higher borrowing costs that would result will kick a housing industry that is already down.
You have to understand something about interest rates.
While Wall Street and the media are fixated on what the Federal Reserve will do to rates, what they should really be watching is overseas borrowing costs. If rates move up around the world there’s little Fed Chairman Ben Bernanke can do to keep them down here.
Any attempt to drive interest rates lower in the U.S. could cause a boycott by foreign investors, who’d flee our markets in favor of better yields elsewhere.
That, in turn, would hurt an already ill dollar and essentially put the Fed at odds with its charter – that is, to protect the U.S. currency.
But there’s something worse about what I just described.
Tomorrow’s labor statistics could be decent (maybe even better than that) without there really being an improvement in the economy.
Suddenly my competitors at other publications, like The New York Times, are all over the notion that the government’s labor figures are inaccurate. Well, they’ve just re-invented the wheel and discovered fire.
This column has been saying for years (nah, more than a decade) that the monthly figures on employment and joblessness being put out by Washington were as reliable as an Atlantic City clairvoyant.
The figure coming out tomorrow will be no different, except that the June employment numbers could have a bigger than normal impact on the financial markets because of the light trading volume caused by the July 4th holiday falling smack in the middle of the week.
Wall Street thinks there will be an increase of 125,000 jobs, compared with the healthy 157,000 that were supposedly created in May. (Remember, I don’t believe these growth levels. I’m just playing a guessing game as to what the government will report.)
The 125,000 figure isn’t a bad guess. In fact, it could be too low because of some squirmy figuring that the government does.
June is the last of big assumptions for the birth of new companies that the government believes – but can’t prove – exist.
This guesstimate was largely responsible for the 157,000 new jobs reported in May.
In fact, there probably wouldn’t have been any job growth in May if the Labor Department hadn’t added 203,000 phantom jobs for companies it believed were too new to count.
In 2006 the government plugged in 166,000 make-believe jobs to the June count. So that’s probably in the neighborhood of what will be added this year.
Those 166,000 questionable positions are likely to be enough to get tomorrow’s figure near – or above – what Wall Street is anticipating.
If the announced figure comes in where investors expect, there probably won’t be any major market reaction.
A weaker-than-expected jobs number will probably only resign Wall Street to what it has come to expect – pathetic growth ahead.
Since any sophisticated investor knows by now that the Fed is hemmed in, there’s likely to be little joy over the potential for lower interest rates.
The big problem: a strong jobs number.
That’ll probably send interest rates back up to levels seen last month.
Worse, any strong figure will be suspect because of the reasons I’ve been mentioning for years – and recently discovered by the Times.
So the country could end up with unjustifiably higher rates even as the real economy (one not jazzed by statistical mumbo jumbo) continues to be weak.