Last Week This Morning
Here’s my Current Take on the Fed
With things changing so much day to day, here’s my executive summary.
I’m not sure we are categorizing the banking crisis correctly. What if it’s not a banking crisis at all? What if banks were just the first shoe to drop in a broader risk mismanagement crisis? What if the banking sector as a whole is largely ok, but there are pockets of mismanagement around the country that are starting to be punished by 5% increase in rates?
Jobs Report
The next job report is due out Friday. Our office is playing a drinking game where anytime an economist or CNBC commentator says the word “resilient”, bottoms up.
The forecast is for a gain of 223k jobs. As you know by now, over the last 10 hiking cycles (back to 1969), the economy averaged 203k jobs heading into a pause. It’s not weird that we are still hiring. Also, keep in mind that 150k, not 0, is the contraction signal because it means we didn’t keep pace with population growth.
My argument is not that the labor market is weak, but that it is not as strong as the Fed suggests. It will be weak at some point, but that takes time. Since we don’t typically start losing jobs until after the Fed starts cutting, we might have job gains all year.
But winter is coming. Just like we are seeing cracks in the financial system, we are seeing cracks in the labor market.
The Challenger Job Report tracks publicly announced layoffs. The most recent report said, “US-based employers announced 77.77K job cuts in February of 2023, the most for the month of February since 2009 and compared to 102.943K in January which was the highest reading since September of 2020. So far this year, employers announced plans to cut 180,713 jobs, up 427% from the 34,309 cuts announced in the first two months of 2022 and the highest January-February total since 2009.” (Challenger Job Report)
Here's a list of some publicly announced layoffs:
“That JOLTS survey though!” Powell cries. “Two job openings for every unemployed American!”
Our friends at the WSJ must be newsletter readers, because look what popped up recently, That Plum Job Listing May Just Be a Ghost. (Plum Job Listing may be a Joke)
Indeed, the online job site, announced layoffs of 2,200 employees totaling 15% of its workforce. Why would they do that with such a robust job market? They should be killing it if that JOLTS survey is to be believed.
ZipRecruiter recently conducted a survey of laid off workers (ZipRecruiter Laid off Workers Survey). Some interesting highlights:
Google searches for “layoff” have surged.
Yes, tech has led the way in layoffs. But as this Bloomberg graphic highlights, layoffs are more-broad based than that. (Bloomberg Layoffs Article)
At this point, I just assume Friday’s job report will be “incredibly robust” leading to talk of a “very tight labor market”.
But there are cracks. There just hasn’t been enough time.
Speaking of Cracks
According to a Bloomberg article, “Global cash funds had inflows of nearly $143 billion, the largest since March 2020 in the week through Wednesday — adding up to more than $300 billion over the past four weeks, according to the note citing EPFR Global data. Money market funds assets have soared to more than $5.1 trillion, the highest level on record. Prior surges coincided with large Fed interest rate cuts in 2008 and 2020, Bank of America strategist Michael Hartnett said.” (Bloomberg Article)
Don’t worry about that discount window borrowing, either. Everything is fine.
Caps
Volatility is off the peak from two weeks ago, basically plunging back to levels experienced last summer.
Generally speaking, caps are down about 20% from two weeks ago. Unfortunately, as volatility dissipates it is being offset by a move higher in rates.
Week Ahead
Some manufacturing data early in the week could move rates, but really all eyes are on Friday’s job report.