Friday's stock market rally, based on the latest employment figures and the increase in consumer confidence, is irrational and has no economic basis. The Dow Jones Industrial Average reached a high of 13,096 and is due for a major correction once economic reality sinks in. A closer analysis of the job report and the consumer confidence index reveals that the real figures are not that promising.
The job report released Friday by the Labor Department shows an increase of 163,000 in the number of non-farm jobs. However, the makeup of this figure indicates that, 29,400 (18 percent of total) jobs were seasonal employees hired by food-service establishments to satisfy demand caused by vacationers and summer travelers. Most of these jobs are not permanent. Additionally, education and health care added 38,000 (23 percent of total) jobs following a decrease of 6,000 jobs in June, which indicates that most of the hiring is related to the new health care law still on shaky grounds. Finally, information services, mainly motion pictures and sound studios, picked up 11,000 (6.7 percent of total) mostly due to the increase in elections-related activities. These jobs will disappear after the elections. All in all, nearly half (48 percent of total) the jobs reported are either temporary or uncertain.
The Conference Board reported an increase of 3.2 points in July's Consumer Confidence Index over June. This report clearly shows the flaws in the current method of gauging consumer confidence because it is based on what people say, not what they do. The reality is that consumers are exhibiting higher financial anxiety by holding back on spending as evident from June's flat Personal Consumption Expenditures (PCE). The stagnation in consumer spending is consistent with the increase in the Money Anxiety Index (moneyanxiety.com), which rose to a high of 92.0 in August. June is the second consecutive month in which consumers halted their spending. May's revised figures show a decrease of 0.1 percent in PCEs according to the Bureau of Economic Analysis.
"Human nature hasn't changed, the emperor has no clothes and everyone is cheering," said Dr. Dan Geller, Chief Research Officer at Money Anxiety Index. "The July employment figure is closer to 80,000 permanent and sustained jobs, and the June confidence level is wishful thinking on the part of respondents—had they felt that confident, they would spend, but they don't."