Markets are reacting to the “surprising” NFP disappointment of 18k.
Surprising? Really? To whom?
ADP’s track record has been awful at forecasting BLS; the rest of the economic data is suggestive of a significant slowing (but not a recession).
The work of Reinhart & Rogoff is rather conclusive in showing that employment and GDP post Credit Crisis is weak. And as we have noted ad nauseum, most of the Wall Street community has been looking at the wrong data set. WW2 recession recoveries provide little or no insight into post credit crisis recoveries. The causes and arcs of collapse and recovery are simply too different.
Which leads us to the markets reaction to today’s data:
In the not too distant past, the market might have been inclined to rally following such a horrific data point. The working assumption is that the Fed, or perhaps Congress, would respond to the economic distress. But the immediate market reaction shows that no one is expecting a cavalry charge to save the day.
Consider the various players and how they have painted themselves into a corner:
Federal Reserve: Has lost much credibility for helping to cause the crisis, for their bailout of Bear Stearns, for sending inflation higher, and for the crumbling dollar. If we were being fair, they should get kudos for re-liquifying the system during the crisis. But they under increasing pressure, face possible audits and other threats to their independence. After QE1, QE2, and now QE2.5 (rolling reinvestment) there is no appetite for another round of Fed easing.
Congress: The legislative body in charge of taxing and spending seems comfortable with their hardened partisan positions, and few accomplishments. Indeed, as the LATimes has noted, the 112th Congress is one of the least productive in decades. Job creation is not going to come out of anything that Congress does. We are more likely to see counter-productive Austerity measures, based on the experiences of Great Britain, Portugal and Ireland.
GOP: I have consistently criticized the Republicans for a) magical thinking despite proof otherwise b) hypocrisy in creating the deficit under Bush but crying about it under Obama. Not interested in anything in terms of jobs.
Democrats: Their inept, uninformed understanding of economics, messaging, and markets is beyond my comprehension (Austan Goolsbee being one of the rare exceptions). Apparently incapable of anything involving jobs.
President Obama: Needs to figure out what his economic plan is, how to interact with the GOP, and whether he will abandon his base. His hands — and brain — seem to be completely tied when it comes to anything involving jobs.
Given that historical backdrop, and the major players tied up in knots (and nots), it is hard to see how the job picture will improve anytime soon . . .