To be sure, the financial markets don’t seem to mind.
Despite yet another weak economic signal, the stock market went on its merry way Friday, with major averages posting slight gains heading into midday.
The bond market, however, has been telling another story, consistently forecasting much more lukewarm growth than its equity counterpart. As is often the case, at least in terms of the economic picture, it’s an ongoing argument that fixed income seems to be winning.
That’s critical as the Fed prepares for a likely rate hike later this month. Fed Governor Lael Brainard earlier this week spoke about the inflation issue, saying that it “is a source of concern,” and pointed out that inflation has remained below the Fed’s 2 percent target for 58 straight months, or nearly five years.
“Fundamentally, growth is slower than people have penciled in for the year,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “The bond market is not concerned that the Fed is behind the curve — it may be concerned that the Fed s a little ahead of the curve. The bond market is currently not seeing the world the same way as the stock market.”
The world itself seems more complicated than one where a little pro-growth rhetoric about lower taxes, less regulation and more infrastructure spending would cast a spell over the economy and push growth higher.
Wells Fargo’s Silvia believes the labor market problems specifically require more complicated solutions.
“There are some tax policy changes, some regulatory policies that could be done. More fundamentally, it’s microeconomics,” he said. “It’s trying to get people talking about skills mismatch. … We need to focus a lot more on education, the opioid epidemic, we need to think about the labor force participation rate for women.”
“These are the micro policies, not the macro policies you see on TV,” he added. “They’re very hard to implement.”
WATCH: Goldman Sachs economist Jan Hatzius goes inside the jobs numbers