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I’m looking forward to this long weekend, because we’re celebrating my wife’s birthday with our kids and her family in Chicago. We have the opportunity to do so thanks to the U.S. labor movement. It pushed President Grover Cleveland to declare this national holiday honoring American workers in the late 1880s.
But now, almost 130 years later, the American worker’s plight is the subject of intense focus all over again. That’s true for policymakers at the Federal Reserve, and by investors the world over!
Just look at this past Friday’s comments from Fed Chairman Janet Yellen. Her speech was titled “Labor Market Dynamics and Monetary Policy,” and it was almost entirely devoted to trying to determine just how strong (or weak) the jobs market is.
Frankly, she sounded just as confused as many Wall Street pundits. She admitted openly that: “a number of developments related to the functioning of the labor market have made it more difficult to judge the remaining degree of slack. Differing interpretations of these developments affect judgments concerning the appropriate path of monetary policy.”
For instance, she noted that the unemployment rate has been falling much faster than the Fed expected. It knifed right through the 7 percent and 6.5 percent targets the Fed had laid out well in advance of the Fed’s original timeline. That arguably would require earlier interest rate hikes.
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| In her speech last Friday, Fed Chairman Janet Yellen sounded as confused as many Wall Street pundits. |
But then she cited the plunge in the labor force participation rate — a fancy way of saying too few Americans are working relative to the size of the population. That arguably would postpone interest rate hikes … except for still another fact she cited: The decline may stem from the aging of the population, employees taking early retirement, and the increase in the number of workers going back to school to boost their skills.
I’ve had to read or listen to a lot of Fed speeches over the more than a decade and a half I’ve spent analyzing the economy and interest rates. The whole “on the one hand, on the other hand” analysis Yellen provided gets a little tiresome after a while. I think that’s because she’s just like many other Fed bureaucrats and Ivory Tower wonks — afraid to stake out firm ground because doing so exposes you to criticism and rebuke.
But I found one passage particularly important. She noted that the Fed has cooked up a labor market conditions index that takes 19 different indicators into consideration. Its bottom-line conclusion? That “the labor market has improved significantly over the past year.”
And that brings me to MY bottom-line conclusions on the labor market this Labor Day Weekend …
I believe the Yellen Fed is finally realizing it’s running out of excuses to keep money overly easy …
I believe the amount of labor market slack is shrinking fast, and that wage growth is going to show up sooner than many on Wall Street think …
I believe the sum total of the data out there suggests the U.S. economy is far from its “crisis era” days, and that a significant policy shift is looming.
All of that will have dramatic implications for everything from currencies to interest rates, and ultimately, to the economic expansion (down the road). So I strongly advise doing the following:
- Invest in strong, domestic sectors that are experiencing strong, SECULAR growth — energy, aerospace, health care, and so on.
- Favor U.S.-focused companies over those exposed to weaker regions like Europe and Japan — and that goes for the U.S. dollar over the euro and yen!
- Continue to “play” the economic revival here now … but recognize that the dramatic interest rate regime change I’m forecasting will cause major headaches down the road. Vulnerable stocks and sectors could be in for rough sledding in 2015 and beyond.
Oh and fourth, have a fantastic long weekend with your family and friends! And if you have time, share your thoughts about the labor market here. What you are seeing in your own backyards helps show whether Yellen and the rest of the Fed is on target or off track!
Until next time,
Mike
P.S. In my just released report, 6 Stocks Set to SOAR In 2014 — and Beyond, I name companies that are the best of the best in key sectors experiencing their own private bull markets … each with huge profit potential. And this exclusive report is yours FREE, right here.
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Yellen speak drives me nuts!! We are talking about an unemployment rate that is figured just like our inflation rate. If it makes politicians look bad, take that segment out of the figures. It makes the public feel good about the unemployment figures they used to hear. The real unemployment rate is just like the inflation rate. Much higher than it should be. Losing your job today really puts no urgency for you to go out and look. Afterall, you have 2 years worth of unemployment dollars headed your way. All the while the politicians are still looking for ways to get more money from those of us who are funding all this manure. In Texas we really know it stinks without having to step in it!
Come out here and try to run a business Mike if you want some real information.it’s a war.
All of the new money from our oil industry has to go somewhere. Our cheap Nat. Gas will help reduce our production costs, all this will off set some of the negatives.
About the time everyone gets their equipment right to “take advantage” of all this “cheap” nat. gas…suddenly, it will become NOT cheap anymore…
Mike,
Coming to Chicago – and NOT a hockey fan??!! from an earlier article!! Figure the money made because of hockey in Chicago!! You need to ‘visit’ during the season and view the game, in person; plus the manner in which the ‘game’ has grown and that includes it’s marketing! (totally different than when I grew-up with the sport in Detroit).
Such growth! such marketing!
t
I’m from Nebraska and I work in a steel fabrication shop. We fab up the I-Beams and all other parts for large buildings. This year we have had more work than we’ve ever had during the 40 years the company has been around. We’ve had to hire extra people even though we technically dont have work space for them. We’ve had to extend our hours past 14 hours per day, and we even worked on 4th of July, which we have never done before. From my experience, the amount of work we do is a direct reflection of how the economy is doing. I’m bullish for the long term. Im sure the markets will go through their standard corrective phases. Its healthy for them and lets us buy good stock while its on sale.