It’s Good News that Good News is Bad News

The Bureau of Labor Statistics (BLS) offered some good news regarding the employment situation on Friday.

The economy added 295,000 new jobs in February, far better than the consensus expectations of 240,000 and the unemployment rate fell from 5.7 to 5.5 percent, a new low since the 2008 financial crisis and the peak unemployment rate since then of 10 percent in 2009.

Part of the reason for the decline in the unemployment rate is that the labor pool shrank slightly, so the participation rate actually fell slightly, although the labor force changes month-to-month are fairly volatile.

While you might think that an improving jobs picture would be greeted warmly – more people can afford more goods and services – investors took a different view because their focus is on the expected short-term actions of the Federal Reserve.

The Fed has repeatedly stated that they don’t have a timetable for when they plan on raising rates, or ‘liftoff’ as it’s known on Wall Street these days, and will instead be ‘data dependent.’

It appears that we have some data to depend on at this point – and the absence of inflation data that would conflict with the Fed’s dual mandate for full employment and stable prices.

Fed Chair Janet Yellen signaled in her recent Congressional testimony that the Fed is likely to drop the term ‘patient’ from their guidance at the next meeting in March, which opens the door for actual liftoff this summer, probably in June.

Investors treated the good news that the labor market is improving as bad news, which is funny because that in and of itself is actually good news. A few years ago, bad news was good news because poor economic data meant more stimulus from the Fed.

It appears that this phase may have passed and that we are closer and closer to normal, non-emergency conditions. We’re not there yet, but the fact that Wall Street isn’t seeing bad news as good news anymore is unambiguously good news.