The worst possible employment numbers were revealed before the stock market’s opening bell this morning. The U.S. economy managed to create a paltry 18,000 new jobs in the last month of 2007. The unemployment rate jumped from 4.7 to 5 percent, although average hourly wages expanded by 0.4 percent- which is a good deal more than was expected, and raises fears that inflation is rearing its ugly head.
The crack (smoking) squad of Wall Street economists were expecting job growth to register a gain of 58,000, the unemployment rate to creep up to 4.8 percent, and hourly wages to rise by 0.2 percent. That looks like three strikes to me. But, with the stock market still in nose bleed territory, floating on fumes of fancy, it should be no surprise that they were way off the mark.
It seems that the housing collapse, brought on by the bursting of a gigantic credit bubble, is rippling its way across the economy. The unemployment rate has risen 0.6 percent from its cyclical low in March of last year. And, earlier this week, the Institute for Supply Management manufacturing index registered 47.7 in December, signaling a contraction in manufacturing activity. This marked the first such reduction in eleven months, and was due to a worrisome decline in demand.
Believe it or not, the blind sages on Wall Street usually welcome dismal developments on job growth and product demand. Why? Because it frees the hands of the Federal Reserve to lower interest rates, reducing credit costs for those who ply their trade with borrowed funds.
But, it was the shocking rise in wages that caused panic among the skittish flock of traders this morning. Rising wages mean that inflation is far from tame, and it limits the Fed’s interest rate-cutting options.
Over the past year, Wall Street has become increasingly detached from the dim prospects faced by those who call Main Street their home. This may be the year that reality smacks the over-paid former lords of finance square in their glass jaws.
Financial alchemists are not solely responsible for the economic problems that are bubbling to the surface- they needed vast numbers of fools to join in on their escapades. They are, however, the last ones to suffer from the orgy of debt that they helped create. Today may well mark the day that the emperor is exposed not only as naked, but that he also owes money on the robe no longer in his possession.