The U.S. economy created very few new jobs in January, making it more likely that both the Federal Reserve and the federal government will boost economic stimulus already underway.
According to the U.S. Bureau of Labor Statistics, the U.S. economy added 49,000 new jobs in January, half of what economic analysts had expected. "The labor market continued to reflect the impact of the coronavirus (COVID-19) pandemic and efforts to contain it," the report read.
Payroll employment now stands below its February 2020 level by 9.9 million, or 6.5%.
The government created most of the jobs added in January. Job gains in professional and business services and public and private education were offset by losses in leisure and hospitality, retail trade, health care and transportation and warehousing.
Meanwhile, labor force participation declined to 61.4% from 63.4% last February, indicating that some job seekers are dropping out of the labor market.
A weak jobs report makes a strong case for the continuation of the Federal Reserve's accommodating policy that has been in effect since last March. It also makes a strong case for President Biden's massive fiscal package being debated in Congress. In a note posted recently, Deutsche Bank Research estimates that the $1.9 trillion package could lift real gross domestic product growth by five percentage points, add about 3 million jobs and lower the unemployment rate by more than 1.5 percentage points.
Wall Street seems to like the prospect of more stimulus. It has been addicted to it, at least the equity markets, which rallied on Friday following the jobs report.
| Fund | % Gain |
| SPDR S&P 500 ETF Trust (SPY, Financial) | +0.39 |
| Invesco QQQ Trust (QQQ, Financial) | +0.34 |
| iShares Russell 2000 ETF (IWM, Financial) | 1.39 |
Still, monetary and fiscal stimulus isn't the best way to place an economy and its equity markets on a sustainable path, especially when the fiscal stimulus is debt-financed.
At least that's the experience of Japan, which has been trying for more than three decades to get its economy going with ultra-low and even negative interest rates and debt spending. Massive monetary and fiscal stimuli kept the Japanese economy off the cliff, but failed to stir it back to its long-term growth path.
Meanwhile, massive fiscal stimuli have left Japan among the world's most indebted nations, and its equity markets striving to find their glory days of the 1980s.
While it's unclear whether America's economy heads in the direction of the Japanese economy, one thing is clear: economies and financial markets cannot thrive for too long on monetary and fiscal easing alone.
Disclosure: I own shares of Invesco QQQ Trust.
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