Friday's nonfarm payrolls report conveyed a very clear message: low interest rates by themselves cannot restart the global economy.
There are consequences that arise when the public stops believing in the efficacy of central banks. For one, volatility increases in currency markets. The PowerShares DB US Dollar Index Bullish (UUP) - Get Report , a fund that tracks the value of the dollar against other major currencies, looks to be forming a topping pattern as it weakens.
Investors are trading with greater uncertainty as central banks across the world keep interest rates at historic lows in order to combat tepid economic activity.
Below is a small sample of indicators relating to the labor market, which convey the lack of significant recovery in the years following the financial crisis.
The first indicator of interest is employment to population. With laborers dropping out of the workforce for various reasons, the unemployment ratio, or even simply nonfarm payrolls growth, presents a less accurate portrayal of the labor market's current health.
Economic activity and employment have a strong correlattion, which makes sense when looking at the rapid pace of growth in payrolls relative to the overall population between 1963 and 2000. The turning point for the U.S. economy took place after the turn of the millennium.
Although low interest rates were intended to raise economic activity and asset prices, corporate cost cutting, technological advances, consolidation of industries and the relocation of operations all led a significant decline in employment in the U.S. Although jobs are currently being added, the level of total employment remains well off previous highs.
Moreover, the demographics of employment are shifting. Below is a chart comparing the level of full-time employment to part time employment. When the indicator declines it signals part-time employment is increasing relative to full-time employment. The indicator rapidly advanced from the early 1980s until the turn of the century. Although part-time jobs increased relative to full time work after the tech bubble, the financial crisis significantly pushed this indicator lower to historic levels.
While the indicator has recovered in the years since the crisis, the demographics of employment remain heavily skewed towards part-time work with regards to previous levels. The composition of employment has weighed on wages and thus been a headwind to overcome for significant economic growth.
While the data have mostly revolved around the U.S. in this article, similar problems plague European and Asian economies. The global solution has been to keep rates low, create incentive for lending and spur inflation. All have tried, and all have failed up to this point.
Asset markets were initially very accepting of stimulative monetary policy and creative financial engineering by corporations, discounting present weakness in hopes of a brighter tomorrow. As China's economy has slowed, however, reality seems to be setting in.
The current path to recovery is not working, and most economic indicators reiterate this point. Until realistic solutions are coordinated by global policymakers and corporations, economies will continue to trend aimlessly sideways. This will spark a new wave of pessimism, leading to more volatility in currency and commodity markets, as well as a revaluation of equity markets lower.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.