US Employment Data Is Not About The Headline Number

US June Non-Farm Payrolls rose (close to the expected level of  230,000) to 223,000. The unemployment rate fell to 5.3%.

However:

• May's data was revised down from 280,000 to 254,000.
• More importantly, the participation rate fell to the lowest level since 1977 at 62.6%.

Most Importantly:

• Average Hourly Earnings were unchanged (expected +.2%) and May's number was revised lower, from +.3% to +.2%).

This is not a sign of a strong (and strengthening economy) because it leaves consumers with potentially less spending power and the US economy is dependent on the consumer for 2/3 of its input. We believe that there is a fundamental shift in consumer attitudes occurring, whereby Baby Boomers are spending less and the largest cohort, The Millennial's have less to spend.

With low inflation and no sign of wage growth, the Fed has even more breathing room (on its timetable for raising interest rates) and certainly does not want to raise rates on an economy that is still not inflating to the degree that it wishes. 

If consumers don't spend, inventories build, manufacturers lower production and earnings fall. That is ultimately not good  for equity prices.

Further, a study (released in April) by the LIS (Luxembourg Income Study Database) show that the American Middle Class is losing its status as the wealthiest middle class in the world.

click on the chart to enlarge, but....look closely at the Canadian situation (top left)

That is the good news here: Canada is catching up!

Happy Canada Day!

www.highrockcapital.ca