Trump’s worst nightmare isn’t impeachment. It’s the economy, stupid. But the record-low unemployment rate shouldn’t give Trump nor markets any comfort.
Full employment doesn’t signal a strong economy at all. It is actually a historically sure sign that the U.S. economy is teetering on the edge of collapse.
In fact, every record low unemployment rate since 1950 precedes a recession and bear market within an average of under 12 months. That’s why the Dow Jones rally over the latest job numbers Friday proves the stock market is clueless about where it’s going.
The shaded areas in the graph below indicate U.S. recessions. As you can see, each U.S. recession is preceded by unemployment falling to its record low since the previous recession.
The following graph of the Dow Jones Industrial Average shows both multi-year bear markets since 1996 began shortly after the unemployment rate hit record lows.
In light of these historical data, headlines like this one from the Associated Press on Oct. 4, are incomprehensible: “Stocks climb Friday after unemployment rate hits 50-year low.”
These people are not serious capitalists.
It gives one the unnerving sense that the people moving around the most money in capital markets are historically and economically illiterate. Wall Street’s coffers are apparently ringing with easy cash doled out by the Federal Reserve to naive newsreaders with a facile interpretation of the headlines, another sure sign of an imminent market correction.
The “Trump economy” in this context refers to the economy during the administration of Donald Trump. It should not necessarily be interpreted as referring specifically to the Trump administration’s fiscal and regulatory policies.
These economic phenomena are cyclical in nature and driven largely by the monetary policy of the U.S. central bank, the Federal Reserve. Perhaps it would be more accurate here to speak of the Bernanke-Yellen-Powell economy.
While strong job figures look like a strong economy to the historically uninformed, thinking about capital markets economically reveals why the opposite is true.
The overall employment rate is a very lagging indicator of economic growth. Full employment is the final stage of economic booms fueled by monetary expansion.
By the time enough capital has “trickled down,” in the parlance of Reaganomics, to create a maximum of quantity demanded in labor markets across all sectors, the massive expansion of credit that made the boom possible has nearly exhausted itself.
Whether or not it’s the president’s fault, as the economy goes, so goes the electorate. That’s why the latest jobs numbers portend an uphill reelection campaign for Donald Trump. The unemployment rate has nowhere left to go but up, and the 2020 election is 13 months away.