Creative destruction: Jobs up amid government shutdown
Recapping the day's news and newsmakers through the lens of CNBC.
Hey, this isn't what the script said! The government shutdown was supposed to undermine employment growth, with the White House claiming it had cost 120,000 private-sector jobs. Instead, employers added 204,000 jobs in October, blowing away economists' forecast for 120,000, and leaving some to scratch their heads—and speculate that Fed tapering could come sooner rather than later. August and September numbers were revised sharply upward. Maybe all those furloughed federal workers were living it up, as the biggest job gains were in leisure and hospitality, especially bars and restaurants. Now for the bucket of cold water—the 720,000-person decline in the civilian labor force, dragging the labor participation rate to the lowest since 1978.
"I find this bizarre. I wouldn't be surprised if this gets revised to some degree ... down."—Moody's economist Mark Zandi
Holiday cheer (or lack thereof)
You'd think all that unexpected job growth would cheer people up. But consumer sentiment has dipped unexpectedly to a near two-year low. The latest survey uncovered a sentiment gap, with lower-income households particularly gloomy over things like job prospects. Households earning $75,000 or more were cheerier. Of course, they are more likely to be making money with record stock prices. Regardless of income, consumers are uniformly negative about the federal government, no matter how many jobs it unexpectedly helps to create while trying to destroy the economy. While consumer spending was up, it wasn't up enough to do much good—just 0.2 percent in September, versus 0.3 percent in August. Inflation remains well below the Fed's two percent target. All in all, the numbers do not bode well for the holiday shopping season.
"The economy remains stuck in the mud."—Merrill Lynch economists Ethan Harris and Joshua Dennerlein
Outsmarting America's widening income gap
It's an inconvenient truth, but a number of studies have shown that Europeans have a better shot at moving up the economic ladder than Americans. In the U.S., for instance, only four percent of those raised in the poorest one-fifth of households make it to the top fifth. Now a new Pew Charitable Trusts study looks at what characterizes the upwardly mobile in the U.S. Not surprisingly, education matters. Some 53 percent of those who started in the bottom rung and got college degrees made it to at least the middle fifth, compared to just 28 percent for those who did not get college degrees. Having more than one paycheck in the house also made people more upwardly mobile.
Also important was avoiding a stint of unemployment. About 34 percent of those with unbroken employment made it from the bottom to at least the middle, compared to 15 percent of those who had suffered unemployment.
'The next great American industry'
Bonds are risky and many investors have all the stocks they want. So, what should one do with a little cash available for a diversification play? Try this: dump your REITS and look for a way to get in on the pot boom. Real estate investment trusts, which lost 40 percent in 2008, roared back, gaining 31 percent the next year. Returns have been strong ever since, due to rising rents. But the big money's already been made, and REITS are up just 8 percent this year, far behind the S&P 500. Now an expected rise in interest rates threatens to further undermine REIT returns.
So that brings us to pot. ... Okay, call it the legal cannabis industry, which is likely to grow by 64 percent this year and to reach $10 billion in five years, according to a recent report. Another recent poll, from Gallup, showed 58 percent of Americans supporting legalization, which was approved in several jurisdictions in Tuesday's elections. At the moment, direct investment in grass growing is tricky, but there may be money to be made in related industries like security systems and software. There are plenty of risks. Then again, outsized returns are often tied to outsized risks.
"This is the next great American industry ... Mark Twain had a great quote. He said that when there is a gold rush on, it's a good time to be in the pick and shovel business."—Troy Dayton, co-founder and CEO of the ArcView Group, a pot-industry market research firm.
—By Jeff Brown, Special to CNBC.com