Follow the Weight of Money to Gauge the US Economy

Before you start buying gold or stocking up on canned goods for the coming financial apocalypse, did you catch the latest US jobs numbers this month?

You have to go all the way back to when the Beatles gave their last performance on the roof of Apple Records to find US jobs numbers this good.

Businesses added 223,000 jobs for the month, pushing the US unemployment rate down to 3.8%. Levels last seen in 1969, when the Vietnam War was still raging.

Check out the trend…


Source: Federal Reserve Bank of St. Louis
[Click to enlarge]

US employment rate reaches historical point

Now I know there are those that quibble about how the unemployment numbers are put together, but I’m more about looking at the trend. However the numbers are put together, you have to acknowledge the trend for unemployment looks to be down.

Those numbers are not ringing any warning bells for me.

To say the recent US jobs report was good is perhaps a bit of an understatement.

You could even say that the US jobs market has reached a historical point.

For the first time on record, there are now more American job openings than there are workers to fill them.

The latest data from the monthly Job Openings and Labor Turnover Survey (JOLTS), showed there were a record 6.7 million open positions.

And the number of job openings is pulling well ahead of the number of unemployed. This is the first time this has happened since the Bureau of Labor Statistics started tracking JOLTS numbers in 2000.

And the gap is poised to keep widening. While the number of unemployed dropped further in May to 6.07 million, the JOLTS data hasn’t come in for the month to compare.

And US workers are getting more confident about leaving their current positions for better ones.

The number of Americans quitting their jobs is also near highs. This is a sign of a tightening labour market, and the expectation of better jobs and pay elsewhere.

Yet well credentialed analysts are still forecasting an imminent financial collapse. All I can say is good luck with that one.

It’s hard to get too bearish about the US economy when you look at the employment data. And remember the US, being the world’s largest economy, will lead the rest of the world in and out of recession.

At some point, the bear brigade will have to concede the US economy is at least doing okay, for now.

The worry for the Fed now is too much good news. That and them being a little bit behind the ball. Which they usually are. A mid-June hike in interest rates is likely now.

And with unemployment near record lows, the US consumer feels confident to spend. The latest data shows consumer spending had its biggest increase in five months.

Meanwhile, the Nasdaq composite index is threatening to break into all-time highs.


Source: Optuma
[Click to enlarge]

Can we expect to see a market collapse?

See how, after the market correction in early February, the share price has been making higher lows on the weekly chart. Now we know why.

Markets knew those job numbers in advance. You have to understand this process if you want to be a better investor.

You don’t need to read the analysts’ opinions, or get caught up in the daily news, to gauge the US economy.

Just wait and see if that February low continues to hold.

Because if that February low does hold, you really can’t call a market collapse with any confidence.

Just follow the weight of money to gauge the strength of the US economy.

From the February low, the benchmark index has continued to make higher lows. You’d have to say the market is still in an uptrend, for now anyway.

Then trade that. Trade the chart in front of you.

Trading the opinions of some analyst, or fund manager calling collapse, can be costly.

Follow the weight of money.

That’s not to suggest there are not economic storm clouds on the horizon, but while that February low continues to hold, you can’t call a market collapse with any confidence.

Be a bull in a bull market and a bear in a bear market. The market trend is still up for now.

If you’d like to know more about using the charts to read the economy and how the economy can be forecast, then go here.

Terence Duffy


Lead researcher,
Cycles, Trends & Forecasts


Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.


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