Curb Your Enthusiasm: Closer Look Shows Evaporating Job Growth

Includes: QQQ, SPY
by: Perry D.
Friday's monthly U.S. jobs report, which suggests a pick-up in growth through September, was better than many expected, but it is not as good as you might have heard.

Strip out the distortion of the one-time exit and return of striking workers to Verizon's payrolls, and the jobs picture of the past quarter looks much more ominous: You'll see a disturbing trajectory of growth (what little there is to begin with) slowing to a crawl.

Here's the government's chart of the change in non-farm payrolls (in thousands), by month:

September's gain looks promising. It's just one month, but it looks like - maybe, just maybe - things have bottomed out here and might soon be turning up.

But hold on. Here's a re-done chart that strips out the distortion of the Verizon strikers (which depressed the August report) and their return to work through September (which inflated the September report):

This is hardly the picture of a bottom being formed, much less a turnaround.

Today's jobs report changes nothing. The U.S. economy is stalling and flirting with recession, to say nothing of downside risks from Europe, D.C. and elsewhere.

Sorry to be a party-pooper, but expect the unchanged reality to dawn on investors fairly soon and for U.S. equity markets to reverse any intraday gains generated by the initial reaction to this report. Those gains might evaporate by as soon as the end of the day's trading, consistent with the pattern we've seen through weeks of repeated, short-lived bursts of baseless relief or euphoria.

Hope alone will not be the basis of a sustained market recovery. To recover, the markets and the larger U.S. economy require a catalyst - a big one. I've argued that what the markets require is a sharp turnaround of the 20-year status quo toward genuine, free-market reform.

But the U.S. presidential contest is shaping up to be one between establishment candidates (it's looking like Obama vs. Romney, at the moment) without real reformers in the mix, and the Fed appears committed to relieving pressure on policymakers to do the right thing by printing money, so dramatic policy change appears much less likely (unless the house of cards collapses, most likely via a surge in inflation and a dollar collapse).

The best, most likely scenario at this point: more stagnation.

Trade accordingly. Any surge in equity markets at this point should be seen as another chance to offload long positions and add to short positions until a real turnaround spearheaded by genuine structural economic reform emerges on the horizon.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.