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“The Federal Reserve is often the chaperone who has ordered the punch bowl removed just when the party was really warming up.”

William McChesney Martin, Fed Chairman from 1951 to 1970, special thanks to our associate Arthur Bass for this gem.

As U.S. unemployment crept lower in recent years, Federal Reserve Chair Janet Yellen stayed with the slow crawl of policy tightening.  Which begs the question, did the Fed keep interest rates too low for to long?

Jobs at First Glance

Friday’s jobs report showed  payrolls rising 222,000 in June, the biggest increase since February.   At first glance it appears joblessness has fallen further, to 4.4% in June from 4.7% at the end of last year and 5% in December 2015.  Average hourly earnings have risen at an average year-on-year pace of 2.6%, but lets look beneath the data to see what’s really going on.

Much of the media cheerleading during the Obama years covered up some UGLY data that’s still with us today and had a lot to do with the election of President Trump.

Far from intentional, but hopeful Media and Wall St. “Fed (central bank) cheerleading” has misled investors for years.  Every January like clockwork – from 2012 on we were promised a “great rotation” out of bonds and into stocks.  Every year, the crowd has called for higher rates and bond yields – only to see them plummet again and again.  Year after year, bonds were panned – but often times were the place to be.

Hope is not an investment strategy – only by digging into the hard facts can the truth be found in the bond market.

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Productivity in Decline


Labor productivity is a measure of economic results – a comparison of the amount of goods and services produced (output) with the number of labor hours used in producing those goods and services. It is defined mathematically as real output per labor hour.  Growth occurs when output increases faster than labor hours – but we’ve seen very little of our long lost friend.  Labor productivity growth can be estimated from the difference in growth rates between output and hours worked.  During the 2012-2016 business cycle – labor productivity grew at a sad annualized rate of 1.1%*.  This growth rate is notably lower* than the rates of the 10 completed business cycles since 1947—only a brief six-quarter cycle during the early 1980s posted a cyclical growth rate that low (also increasing 1.1%).  That’s ugly indeed, but what’s driving this picture?

*U.S. Department of Labor, BLS data

Full Employment with Youth on Strike?

“Men ages 21 to 30 years old worked 12 percent fewer hours in 2015 than they did in 2000.  Nearly 15 percent of young men worked zero weeks in 2015, a rate nearly double that of 2000.”

Young American Men Living at Home with Parents or Relatives

2017: 35%
2000: 12%

National Bureau of Economic Research study, July 2017

Artificial Intelligence AI’s Impact, the Side Effects of Easy Money

There’s a lot going on in labor market data… <read more here>