Goldilocks Silences Jerome Powell

"Hey Jerome, enough with the rate hikes."

Fairy tales keep coming true in the U.S. economy.

Most people know the classic story of Goldilocks describing the porridge of the Three Bears: Not too hot, not too cold, but just right. Most people probably also know how it gets applied to finance: Inflation’s not too hot, and growth isn’t too cold. When things are just right like this, pundits start talking about Goldlilocks.

Today’s jobs report was perhaps one of her biggest triumphs yet, with the blonde lass humbling the world’s top central banker and the country’s top payrolls processor.

Let’s start with Jerome Powell, Chair of the Federal Reserve. Just yesterday, minutes from his last meeting warned that “heightened inflationary pressures” would lead to “financial imbalances that could lead eventually to a significant economic downturn.” Scary! The big bad wolf would huff, and puff and blow the house down!

Mark Zandi at ADP was also hiding under the bed, with nightmares that a labor shortage would “only intensify across all industries!” Lions, and tigers and bears, oh my!

More like, denied! That was the verdict from today’s non-farm payrolls report, which provided little evidence of the inflation bogeyman coming out of the shadows. Instead, the narrative of spiraling wages and worker shortages unraveled at the very same time economic numbers got better.

First, hourly earnings rose just 2.7 percent, missing the estimate for a 2.8 percent increase.

Unemployment also spiked to 4 percent, way above the 3.8 percent forecast. That would be bad unless you consider the fact that 213,000 jobs were added, beating the 190,000 estimate.

The real reason unemployment rose is that 601,000 Americans entered the work force, one of the biggest gains in the last decade. Discouraged workers came off the the sidelines.

So you have an increase in hiring, more people seeking jobs and no runaway wage inflation. Goldilocks just silenced fear-mongers at the Fed and ADP.

But it gets even better because manufacturing continued to surge. Some 32,000 jobs were added last month in factory jobs associated with “durable goods,” things like machinery, pipelines and cars. That was the biggest increase since December 2011. Furthermore retail jobs, which pay less and generate less dynamism across the economy, were the only major employment category to shrink.

A separate report from the Commerce Department also showed the U.S. trade deficit in May falling to its smallest level in 20 months. This bodes positively for growth in coming months, as well.

In conclusion, investors always need to avoid complacency and taking a strong economy for granted. But right now the numbers suggest this story still has a happy ending.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.