The US markets reached all-time highs at the end of the week. But was the growth induced by growth???
The growth towards the end of the week was spurred on by weaker than expected jobs data. This market movement is not one spurred by earnings and growth, but rather the hope for more dovish Federal Reserve Board (FRB) policy as a result of slowing growth. The unemployment rate fell to 4.3% from 4.4% even though fewer than expected jobs were added. The participation rate fell from 62.9% to 62.7%.
There are two reasons why the participation rate would fall as it has. First and most likely, the boomer generation continues to be a drag on the number of people in the work force as they continue to retire. The second, and less plausible, is that job prospects have diminished and caused people to stop looking. This type of change in the participation rate would artificially pad the unemployment rate. This was very much so the case in 2009-2011 as we saw the unemployment rate fall before job creation was as robust as it is now, but at this phase of the expansion this would be unlikely.
The excitement the markets showed for the hope of a dovish FRB does not encourage the prospects of near term momentum. The kind of momentum they are encouraging is the kind that is reliant on stimulus and slow economic growth.
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