On Friday morning, BLS Payroll Data was released, and December’s jobs were better than most economists had expected. Bloomberg TV said, “the US labor market stayed resilient last month, while wage gains cooled, raising hopes that the economy may dodge a recession and the Federal Reserve will further slow its aggressive campaign of interest-rate hikes.”
I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group, and this is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” for your money. This week we give our thoughts on the recent Jobs report and why our team thinks the bond markets, both long and short-term treasuries, rallied so much, and the stock markets followed suit as the mainstream media reported, “the economy and job creation are great.” For those of you wanting to follow some great primary research on the topic, please seek out the economic article section on the website “Zero-Hedge,” that’s where much of this data and a few of the charts that follow come from.
Friday morning’s BLS payroll data was released pre-opening Friday, January 6th, and while lower than November’s 244,000 number, December’s 223,000 jobs was better than most economists had expected. Bloomberg TV said, “the US labor market stayed resilient last month, while wage gains cooled, raising hopes that the economy may dodge a recession and the Federal Reserve will further slow its aggressive campaign of interest-rate hikes.” So the stock market ripped on Friday because it’s goldilocks and the markets now think a soft landing is possible. This is what many TV financial personalities preached.
So yes, reported wage growth was less than expected at “only” 4.6% in December, marking its lowest growth since August 2021, almost 18 months or a year and a half ago, back when few were worried about an inflation cycle. Workers staying at their existing jobs saw the smallest pay growth in over three years, and job switchers saw a downward growth rate. Still growing year over year but at a slower rate. Good news for the service economy inflation fight that the Fed is waging.
Both average hourly earnings and average hours worked dropped. Those are good signs for investors like myself who have been watching real-time data and saying the Fed should slow its pace and pause sooner than they are messaging.
The issue is behind the scenes, where the jobs picture is much worse than economists at the BLS, politicians in DC, and most TV financial news hosts parrot. In prior videos, we’ve discussed the difference between the Household Survey number of jobs and the BLS payrolls job numbers. Remember, the household survey counts bodies, while the BLS payroll data counts worker jobs, including 2nd and third jobs. If a worker, in an effort to fight inflation at home, goes from working one job to working three, including two part-time jobs, the BLS survey counts that as 2 new jobs created. Here’s the cumulative difference between those two methodologies. This difference currently stands at 2.1 million jobs.
Starting back at the end of the first quarter of 2021, the two figures started diverging dramatically, peaking at a 2.7 million job differential in November. Yes, the number dropped 600,000 month to month, but that’s entirely due to the year-end “seasonal” adjustment the BLS does on their data.
You may ask, why is there such a massive difference in the two numbers, and does it matter? The answers are that the surge in employment that the BLS releases in their data and is often touted by politicians in DC and the mainstream media has been entirely a function of part-time workers and multiple job-holders the last year and a half.
According to the Household Survey, the number of full-time workers was 132.299 million in December, or exactly 1,000 workers less than in November. At the same time, the data says the number of part-time workers rose almost 680,000 month to month while the number of dual job-holders, which the BLS data double counts, jumped by 370,000. Doing the math for yourself, you find that there were actually -167,000 fewer people working full-time jobs in December than in November.
Investors, all of the December employment increase was on the backs of part-time workers trying to fend off inflation. These part-time jobs are less secure, pay less, and usually have zero benefits versus full-time workers. These positions are almost always subject to the last hired, first fired rule of hiring, and while the stock markets cheered the release, they likely cheered it for a very different reason than the one you heard on TV. They cheered it, because behind the scenes, in the real world, not the world of manipulated statistics, the economy is slowing, service inflation is rolling over, and unless the Fed wants to make another massive policy error opposite of staying too easy with money for too long, they need to slow or stop their interest raises in the first quarter of 2023 and let the economy catch up.
Which, as we have previously messaged, the markets would cheer. As historically, the markets don’t always require a real Fed pivot. Markets tend to start moving with a Fed pause if they haven’t already broken something. 1994 being the most recent example.
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I’m Chris Perras and from everyone here at Oak Harvest, have a blessed week.