The big news of the first week of the new year is usually about December job numbers. The Wall Street consensus was +203K for Non-Farm Payrolls, but the headline number, at +223K, beat that consensus. As a result, the story of “soft landing” is back on the table. The cherry on top of the deficit is wage growth (+0.27% in two decimal places). The consensus was +0.4%. Perhaps the most dangerous “paying” environment is not happening! And with those two pieces of data, the same market was more than 2% on Friday, January 6 (the DJIA was more than 700 points). One would think that, since the labor market appears to be very strong, this would prompt another hawkish response from the Fed, and interest rates would be even higher. But the opposite happened in the 10-Yr. Treasury yields fell more than 16 basis points (to 3.56% from 3.72% on Thursday) and even short-term rates fell. (the 2-Yr. Treasury fell almost 20 basis points to 4.26%). Something seems to be wrong!
Under the Hood
We often warn our readers to look under the headlines, especially at relevant information that is ignored by the media. It’s smart to do that with this particular job description! As mentioned above, the headline Pay number is +223K (Seasonally Adjusted).
- The additional Birth/Death ratio is +79K. (Note: This is the line of “increase” in the account for small business that is not analyzed.) Also, the number of jobs in November was revised down by -28K (and it seems previous months were revised down, but those months were not reported until the annual review was announced in early February). As a result, the actual new job change counted by the BLS was +116K. Still good, but nowhere near +223K.
- The number of jobs, while important, does not tell the full story of jobs because, while the Wage Survey counts the number of jobs, it does not distinguish between full-time and part-time jobs. or working hours. The total number of jobs may rise, but if all are part-time, and if working hours fall, then the economy will shrink. And that’s what happened in November and December. Last month working hours fell -0.3%. That small percentage may not seem like much, but when spread over 159 million workers, that’s a lot of hours. According to Wall Street Economist David Rosenberg, when working hours are taken into account, the equivalent number of jobs fell -150K in December (and -300K in November). Looking elsewhere for corroborating evidence, we find that the factory workweek fell -0.25% in December and has been flat or falling every month. since February.
The unemployment rate
The unemployment rate (U3) fell from 3.7% to 3.5%. Isn’t that also a sign of labor power? Again, let’s consider the details. U3 is calculated from the Household Survey to count working people. That is, if you are “employed” you are counted as one even if you have more than one job. In the December report, there was no marginal increase in full-time employment, but part-time employment grew by +679K! This tells us that the increase in the number of jobs in the Payroll report (ie, the +223K) was seasonal. 5.1% of the workforce now has two jobs. That’s up from 4.7% in October and is a sign of distress in the labor market, not a sign of strength – similar to the recent rise we’ve seen in credit debt.
In fact, the “strong” labor market, “soft landing” information is not supported by other information.
- If the labor market is really difficult as suggested by the media or the number of Wages alone, then the softening of the wage growth discussed above will not happen, the In other words, we hope that payments will accelerate, not decrease! The chart above shows the eight-month change in job openings in the JOLTS (Job Openings and Labor Turnover Survey), a favorite of Fed Chair Powell. This type of behavior only happens in Recessions.
- Dismissal notices have accelerated and are now a daily occurrence. As we write (Friday, January 6), two of the top four CNBC headlines are reading:
Salesforce co-CEO Marc Benioff announces more layoffs after recent layoffs
McDonald’s plans to restructure, cut jobs as restaurant openings accelerates
- Technology, America’s growth industry, dominates the headlines. The chart at the top of this blog compares the number of tech company shutdowns from April 2020 (the start of the Covid lockdown) to November 2022. Note that last November saw a lot of tech shutdowns. suspension than during the lock. The table below shows the specific releases of this category.
- Layoffs.fyi estimates that last year 1,018 tech companies laid off nearly 154,000 workers; this compares to 80,000 layoffs from March-December 2020, and 15,000 in all of 2021. The chart above shows the acceleration in digital layoffs in the second half of 2022.
- Another sign of trouble in the labor market comes from the head hunters themselves. Temp Agency jobs are a solid leader in employment. Employment in this industry fell -35K in December and has fallen for the fifth month in a row (to -111K). Think about what this means. When headhunters cut their heads, it means job opportunities are drying up.
- The ISM Manufacturing Survey came in at 48.4 in December vs. 49.0 in November, both numbers below the line of sight of 50 between growth and decline (left chart), and a compilation from the Regional Federal Reserve Bank Manufacturing Surveys of new orders, production and employment it has now fallen below zero (right chart).
- To go along with the better-than-expected wage growth mentioned at the top of this blog and the soft tone in the PCE, PPI and CPI inflation measures, the survey by the ISM of the prices paid in the manufacturing sector (39.4 December vs. 43.0 November ) (see the chart below) is close to the lowest reached during the Covid lockdown in April 2020. It is clear that damage.
- In previous blogs we have discussed extensively the plight of the housing sector. Remember that the decline in real estate is deeper than just housing. According to Rosenberg Research, there are 212 million square feet of available space under lease, the highest ever recorded and nearly double the 109 million square feet available at the end of 2019.
- In the last six months, wages have fallen in some hot markets: by -3% in Las Vegas, by -2% in Phoenix, and -1% in Tampa. Part of the reason is that 400K new apartments came on the market in 2022. Since 2023 is on track to produce more than 500K new units, the listings are The fall is far from over, and will play a role in controlling monetary policy. in the second half of this year.
Apart from the work data, the first week of the new year also announced the minutes of the Fed’s December meetings. For several months we have shown that the Fed’s new “clarity” (indicated in the markets where interest rates are headed by “dot-plots”) was good for the policy, while the markets were quick to move. interest towards the middle of the. it was engraved. However, when it’s time for a rate cut (“step down” in rate hikes), for a “stop” in rate hikes, or a “peak” rate cut Relatively speaking, we thought the market would move to ease financial conditions (ie, lower market interest rates) at a faster rate than the Fed wanted. As a result, in order to prevent the market from quickly satisfying financial conditions, the Fed should appeared be more hawkish. Our opinion seems to be confirmed by this quote from the minutes recently issued:
The participants noted that, since monetary policy is very effective through the financial markets, the reduction of the appropriateness of the monetary conditions, especially if it is due to the wrong opinion of the public. in the action of the Committee’s response, it will be difficult for the Committee’s effort to recover the price.
Clearly, the current hawkishness is intended to prevent financial markets from “unreasonably complacent.” Our view, reinforced by these minutes, is that the Fed will respond to the economic data that comes in a timely manner. We see another “step-down” in rate hikes to 25 basis points (.25 pct. points) at their meeting on February 1, and as the Recession continues to show and price data continues to drop, a “stop” in March. 22n.d meeting We also see the “level” down the rate to happen sometime in 2023, probably in one of their Q3 meetings.
Our last word is “BAAA” (say it loud)! Liability is a Change.
(Joshua Barone contributed to this blog)