Now we’re in trouble — the economy actually created a decent number of jobs in October.
Despite the fact that the government was shut down for much of the month and confusion abounded, the Labor Department reported that 204,000 new jobs suddenly appeared in October.
And, this is nearly as important — the August and September figures were revised upward to show an additional 60,000 new jobs.
The unemployment rate rose from 7.2 percent to 7.3 percent but that was due to the shutdown, which delayed the report by a week.
Wall Street was looking for a disastrous number. The consensus was just 85,000 jobs, but that guess rose to 120,000 after a decent (and deceiving) report that showed the economy grew at an annual rate of 2.8 percent in the third quarter.
In my column Thursday, I warned that Wall Street was underestimating the October number.
But truth be told, I didn’t think the tally would come in as high as 204,000 even though the Labor Department was tacking on a large guesstimate for jobs it thinks — but can’t prove — are being created by newly formed companies.
Do I believe there were really 204,000 jobs created last month, even as health care reform continued to make companies more reluctant than ever to add full-time workers? No.
But 204,000 is the number that was reported and it’s the one the markets and the Federal Reserve will be forced to reckon with.
The jobs report renewed debate about whether the central bank will continue Chairman Ben Bernanke’s easy-money policies, or quantitative easing.
Because the Fed has been printing an enormous amount of money through QE, any sign of more robust economic growth causes interest rates to jump.
And those higher rates will inevitably snuff out economic growth.
The consensus among people on Wall Street with a vested interest in QE is that the Fed wouldn’t cut back on its $85 billion-a-month bond purchases because inflation numbers are still tame.
Those folks are looking at the wrong thing. They should be watching bonds and interest rates.
Bond prices declined sharply and interest rates spiked higher Friday on the unexpectedly high job growth. The government’s 10-year bond yielded 2.75 percent after the employment report, up from 2.60 percent just before.
If the bond market continues to jack up rates, the Fed will have no choice but to back off QE. If it doesn’t, incoming Fed chief Janet Yellen will find herself with absolutely no control over the fixed-income markets.
Yet even as bond prices were declining, stocks kept rising. Wall Street has bubbles in both the bond and stock markets. The bond bubble has been popping since May, when the 10-year bond was yielding just 1.9 percent.
Stocks, of course, remain in their own little fantasy world. The Dow climbed more than 167 points to 15,761.78 Friday on the healthier-than-expected payroll figure.