A mediocre payroll number is better than a robust one

All told, Friday’s report could disappoint. But to a market preoccupied by the timing and size of the Federal Reserve’s first interest-rate increase, a small job gain might actually be less traumatic than a supersize one. High unemployment, after all, is one of the primary reasons the Fed has kept interest rates near zero despite other signs of improvement in the economy.

That paragraph from Kelly Evan’s Wall Street Journal article "Why a So-So Payrolls Report Is a Winner" sums up my view on the payroll numbers. The potential for a double dip recession is still high and there is immense pressure on the Federal Reserve to normalize interest rates.  A high payroll number will add to that pressure.

Recent comments by the Chinese Central Bank get at some of the problem:

The central bank said the ultra loose monetary policies, including quantitative easing adopted by major central banks, had pumped huge liquidity into the global financial markets.

"Once the real economy turns better, the massive liquidity being released out will definitely add to inflationary pressure," the bank said.

"It is an urgent task faced by central banks in the world to avoid the forming of asset bubbles and inflation."

Without government support, the US economy is extremely weak. In my view, a rise in asset prices has cushioned the blow from recession. However, the more robust the recovery, the quicker the government and Fed prop ends and the sooner we get a second leg down.