Well, the latest numbers related to job creation were recently released and to no one’s surprise, they were worse than expected.

For the month of September, job creation totaled 148,000, down from expectations of 180,000. (Source: Bureau of Labor Statistics, October 22, 2013.) While most people are simply writing off the latest data by saying that the U.S. government shutdown was the primary reason for the lack of job creation, I think there’s much more going on behind the scenes than simply a couple of weeks of not going to work.

This lack of job creation extends beyond simply the past few weeks; the trend over the past couple of years has remained far below potential. Even with the Federal Reserve throwing literally trillions of dollars into the U.S. economy for the past few years, there are no signs of life.

However, looking at the total level of job creation is not enough. Two other key figures you should pay attention to in addition to the total level of job creation are wages and hours worked. The Federal Reserve takes these additional metrics into account when trying to develop a picture of the economy.

The average hourly earnings increased by 0.1% in September, slightly below expectations of 0.2% from the previous month. The average hourly workweek did not change at 34.5 hours.

I don’t know about you, but seeing a mere 0.1% increase in my pay would not cause me to run out and spend more money or feel more secure about my financial future.

Before job creation takes place, you will usually notice hours increasing as employers use existing workers for longer hours through overtime, rather than hiring new employees right off the bat. Therefore, the fact that average hours worked per week is not rising indicates that businesses are not seeing an increase in demand for their products.

If this is the net result stemming from the most aggressive monetary policy ever put in place by the Federal Reserve, I can only think of one word to describe the situation: pathetic.

Federal Reserve by Dan Smith

Federal Reserve by Dan Smith

Even though the lack of job creation shows that our economy remains weak, stocks are moving upward. This tells me that people aren’t buying stocks based on true fundamentals, but because of the promise of continued Federal Reserve-induced stimulus.

The problem now for the Federal Reserve is that they are running out of arrows in their quiver. I think that the Federal Reserve’s monetary policy is losing its effectiveness—meaning, the central bank is pushing on a string. At some point, this will begin to impact stocks.

However, once the Federal Reserve begins to reduce its aggressive monetary policy stance, I think the economy and job creation will get hit significantly.

Look at it this way: if job creation was only at 148,000 new positions last month with the most aggressive monetary policy stance by the Federal Reserve in history, does that give you any confidence that the U.S. economy can stand on its own two legs?

Not to me, it doesn’t, as it appears that the fundamental nature of the economy is broken and needs significant structural reforms. But try telling that to the stock market.

SPX-25-10-2013You would think that with a weak economy, muted job creation, and no real income growth, the stock market would have trouble moving higher—wrong. The S&P 500 is at its all-time highs.

While the market was oversold in 2009, I would say most of this year’s move has been fueled by the Federal Reserve’s monetary stimulus.

Considering where the job creation is today, I would certainly look at raising cash, because at some point, the fundamental picture of the economy will begin to impact the stock market and bring prices back down to reality.

This article How to Invest in This Fundamentally Broken Economy by Sasha Cekerevac, BA was originally published at Investment Contrarians

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