The Keystone Speculator's Unemployment Rate Indicator; US Monthly Jobs Report Aftermath

The Keystone Speculator's Unemployment Rate Indicator is flashing yellow. The 2/7/20 jobs report is 225K jobs with an unemployment rate one tick higher at 3.6%. Wages lose a tick on-month but gain a tick on-year to +3.1%. That's nothing. As Keystone has previously explained, the dirty little secret the Federal Reserve will never admit in public is that wages need to grow from +4.0% to +4.5% annually for overall inflation to exist above +2%. Without wage growth, inflation will not increase. The Fed's grand 11-year Keynesian financial experiment is a failure at creating inflation although it did serve to make the privileged class filthy rich.

But let's place wages aside for another day before Keystone becomes too riled up about how the common person is screwed everyday by the crony capitalism system, and instead focus on the unemployment rate. No, before that, a word about the headline jobs number. Much of the US is experiencing a record-breaking mild winter. There should be a foot (0.3 m) of snow outside of Keystone's window right now, and there is, but that is because it snowed yesterday, but before that, there has not been any winter. Construction jobs jump strongly higher as you would expect in a mild winter. In addition, there are seasonal corrections that now pump the numbers higher due to the mild weather. There will be payback on the headline jobs numbers in the springtime. Manufacturing jobs are lost; of course they are, that is what happens in a manufacturing recession.

Okay, now for the unemployment rate. After modeling the data for many years, Keystone's unemployment rate indicator has been very effective in forecasting great times ahead, as well as sadness. The blue line is the US unemployment rate and the dark red line is the signal line. If the unemployment rate is above the signal line (blue above red), we live in troubled times as the economy and markets suffer through a recessionary, and perhaps depressionary, period. Once the rate falls below the signal line (blue below red), it is blue skies and happy times ahead. The economy is on the mend or thriving and everyone is fat, dumb and happy.

The large red circle up top shows the 2008-2009 Great Recession with the unemployment rate at 10%. The unemployment rate was 10.2% on 11/6/09. Alas, how quickly humans forget. On 1/7/11, however, just as 2011 started, the rate drops off that high perch to 9.4% enough to signal that the worst is over and the job market will get better here on out. And it did.

In 2011, the unemployment rate remained above 9%. In 2012, it was 8% and sneaking out a 7%-handle late that year. In 2013, 7%. In 2014, 6% dipping into the 5% territory. In 2015, 5%. In 2016, the unemployment rate was getting stuck around 5% and had difficulty moving lower. This was a major test since the indicator was a tiny hair from triggering trouble ahead on 10/7/16, but, as usual, the Fed saved the day. The Federal Reserve has technicians and smart market folks chained to their desks in the bowels of the Eccles Building. These are smart people; they see what is coming. In addition, President Trump is elected and his plans to cut banking regulations and lower taxes creates joy.

So the economy and markets were saved again by the Fed and other global central banks although on 2/3/17 another scare occurs where the warning signs were flashing. Easy money papers over this as well. In 2018, the rate is at 4% with a dip into 3% territory in the back half of the year. In January 2019, after the Q4 2018 stock market crash, the rate climbs to 3.9% and on 2/1/19 printed 4.0% which triggered a negative for the indicator (red circle). This is when the Fed panicked, as well as other global central bankers, and they started printing money like madmen which created the 2019 global stock market orgy. The rate then remained a 3% handle all year from March 2019 to present. In 2020, the January rate is 3.5% and yesterday, 2/7/20, the unemployment rate is 3.6%.

The reason all this mumbo-jumbo is important is that the US is once again on the precipice of trouble. Fed Chairman Powell must be spending a lot of nights sleepless hugging Freckles the cat while sipping hot chocolate wondering what the future brings. The entire world's economy rests on Jerome's thin shoulders.

If the unemployment rate prints 3.7% next month on 3/6/20, it will trigger the negative cross on Keystone's indicator and forecast the start of serious trouble. So mark the number down and see if it occurs.

Keystone has written for years about the phenomenon where the unemployment rate actually climbs when an economy is starting to pick up. It's not rocket science; every first-year economics student understands the concept. The survey for the rate asks folks if they are actively looking for work, if not, they are not counted. What happens when an economy is coming out of recession, is that folks that had given up hope since they cannot find a job, all of a sudden begin rushing back into the workforce. The economy is picking up and people can feel it. The help wanted signs are out and job advertisements in newspapers and on line increase. Then even more people are excited about getting a job and getting back to work after a couple years of misery. However, initially, there is a ramping up period and what happens, since all these folks are counted as seeking work again, the rate moves higher.

In this scenario, the unemployment rate moves higher because the economy is recovering and there are great times ahead. So when you see the rate climb you are not sad about it, instead it is expected and a great signal that the economy is on the mend. Some of the business media folks were touting this line yesterday, and probably will this weekend, that the higher rate is good, and they are correct in the context explained above, but that's not happening now.

The Fed and other central bankers have destroyed all price discovery and expected business cycles in markets with their obscene 11 years of money-printing. The Fed has artificially-created the longest economic expansion and stock market rally in history. It would be fantastic if the illusion was real but instead it is only a Potemkin Village created by these modern-day Money God's. When the rate goes up yesterday, and perhaps on 3/6/20, it is not due to a robust economy on the mend, quite the contrary. The rate is going up because folks are about to be sh*t-canned as we head into recessionary times. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.