As crazy as this may sound, not all employment is good employment. Today’s labor department release of a larger then expected 337,000 increase in October non-farm payrolls, heralded by Wall Street as evidence of a vibrant U.S. economy, actually confirms the reverse: a dangerously imbalanced economy moving further off kilter.
The over-bloated service sector added another 272,000 jobs, while the beleaguered manufacturing sector lost an additional 5,000. In other words, the wealth producing sector of the economy lost jobs while the wealth consuming sector gained. The last thing the U.S. economy needs is more non-productive service sector jobs, which will only lead to higher trade deficits, as Americans imports more goods that service sector workers do not produce, and larger current account deficits, as greater interest payments become necessary to service growing external debts.
While this reality may have been lost among U.S. investors, who reacted foolishly by buying stocks, it was not the case among currency traders, who despite an initially, almost reflexive action to buy dollars on apparent “good” economic news, quickly re-evaluated the data and sold, sending the buck to a new all time low against the euro, a twelve year low against the Canadian dollar, and the U.S. Dollar Index to a nine year low. However, unlike recent dollar routs, U.S. bond prices plunged as well. In fact, today’s tandem move in bonds and the dollar may signal an end of the recent anomaly of the two moving in opposite directions. If so, the days of American consumers exchanging IOUS’s for imported goods may finally be coming to an end.
An article in yesterday’s New York Times referred to the hypothesized symbiosis that results from Asian producers subsidizing American consumers. This naive view equates American consumers, who get something for nothing, with Asian producers, who get nothing for something. The article also referred to a nameless influential group of “economists” who content that this “symbiotic” relationship can continue indefinitely. Not only are these “economists” wrong on their characterization of the nature of the relationship, but today’s action in the currency and bond markets suggests that the hosts in this parasitic relationship may be on the verge of opting out.