On Wednesday, Jerome Powell testified before Congress the U.S. economy is “suffering” from a bout of uncertainty caused by trade tensions and slow global growth. To wit:
“Since [the Fed meeting in mid-June], based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”
That outlook, however, would seem to be askew of the recent employment report for June from the Bureau of Labor Statistics last week. That report showed an increase in employment of 224,000 jobs. It was also the 105th consecutive positive jobs report, which is one of the longest in U.S. history.
However, if employment is as “strong” as is currently believed, which should be a reflection of the underlying economy, then precisely what is the Fed seeing?
Well, I have a few questions for you to ponder concerning to the latest employment report which may actually support the Fed’s case for rate cuts. These questions are also important to your investment outlook as there is a high correlation between employment, economic growth, and not surprisingly, corporate profitability.
Let’s get started.
Prelude: The chart below shows the peak annual rate of change for employment prior to the onset of a recession. The current annual rate of employment growth is 1.5%, which is lower than any previous employment level prior to a recession in history.
More importantly, as noted by Lakshman