August Jobs Report is Enough to Change My Mind

August Jobs Report is Enough to Change My Mind
By: Todd M. Schoenberger, @TMSchoenberger

The August Jobs Report is a game-changer. It’s a game-changer for the Fed, the White House, and for me. The print of 96,000 jobs and an unemployment rate of 8.1 percent isn’t forcing the hand of the Fed and Washington to resolve monetary and fiscal issues; it’s a ringing bell telling us the game is about to end.

First, on the employment report. In a similar fashion to lowering expectations for corporate earnings, Wall Street provided a softball pitch to the Bureau of Labor Statistics. A very-low bar was set for the economy to deliver an embarrassing 125,000 jobs in August. Considering seasonality issues with education and the somewhat promising housing data helping those in construction, we should’ve easily passed this figure with little help from other sectors. Instead, the number clearly missed and has put the Fed on ‘red alert.’

The fiscal disaster brewing on Capitol Hill is NOT going to be resolved by January 1st. Be prepared for higher taxes and mass layoff announcements from the defense sector. Sorry folks, I’m just the messenger. But the likes of Ben Bernanke are on deck and the expectation of delivering another bond buying program, ala Quantitative Easing III, is as sure as the sun rising in the east.

I was not of the belief the Fed would pull the trigger at next week’s two-day meeting (announcement scheduled for 12:30pm EST on Thursday). The perception of “helping” the White House with further accommodation would be too powerful to overcome for the independent central bank, in my opinion. Well, the problem is, if the Fed does nothing next week and waits, the certainty of a double-dip recession becomes 100 percent.

Remember, the intent of launching a QE3 program is 1) prevent a recession, and 2) manufacture a wealth effect for Americans. Number two has already occurred with a year-to-date return of thirteen percent-plus for the S&P 500. However, if the Fed doesn’t move, those gains could quickly evaporate in just a matter of weeks. Thus, really forcing the hand of the Fed to implement another monetary policy move.

The other side of it is the August jobs report. The assumption is quickly turning to a dismal, no…miserable, September labor report. Ask any Wall Street economist today what their feelings are for an ‘upside surprise’ when the next report is released, and you’ll get an absolute negative forecast of volcanic proportions. The next report will be a disaster. Yes, you heard it here first.

As a result, and the expectation of downward revisions to the August data, the Fed will implement a new strategy with a shock-and-awe announcement next week. And, it needs to be shock-and-awe. If Bernanke doesn’t go all-in, the threat of a QE4 will send the recovery period for the Fed’s balance sheet back by decades. Plus, why risk going halfway, when we all know the markets will not respond favorably to an amateurish QE program.