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The Economy Lost 355k Jobs Last Month

It’s just whatever.

Hats off to Oregon for playing great and I loved how hard PSU fought.  This was not the type of loss I have come to expect, where our offense looks inept, and our defense gets manhandled.  I don’t believe in morale victories, but the players showed up and never gave up.  This was not the classic Franklin L.

But once again, in definitely classic Franklin style, nonsensical play calling and poor clock management bite us.  Going for two when you just need the extra point?  WRs are our weakest position, and we throw a bomb?  Best case we complete that and score, giving Oregon time to beat us.  A shocking lack of awareness.  At least I made some money betting against Franklin against a top 5 team.  Free money.

In what will go down as the most heavy-handed segue of 2024, I am just as exasperated with the market’s obsession with non-farm payrolls.  Sure, we added 227k jobs last month, but we were just 6,700 more unemployed people away having a 4.3% unemployment rate.  It’s just whatever.

The market has odds of a cut on the 18th at 86%.  Remember, the magical threshold is 60%.  If the Fed disagrees when market odds are greater than 60%, it will send strong signals to correct.  Its goal at every meeting is to have total non-reaction from rates. 

But the Fed is in a blackout period ahead of the meeting on the 18th, so any signals will need to be sent via leaks, like we saw with the WSJ’s Nick Timiraos or a Bloomberg OpEd by Bill Dudley in September.  Wednesday brings CPI, so there’s a chance that data print does most of the heavy lifting for the Fed.  

Until the odds of a cut drop below 60%, the Fed is cutting.  To keep tabs on the market odds, just go to here.

 

 

  • 10T: 4.15%
  • 2T: 4.10%
  • SOFR: 4.59%
  • Term SOFR: 4.47%
  • JOLTs Job Openings – 7.744mm vs 7.519mm expected
  • ISM Services PMI – 52.1 vs 55.7 expected
  • Jobs Report
    • Non-Farm Payrolls – 227k vs 220k expected
    • Unemployment Rate – 4.2% vs 4.1% expected
      • Just 6,700 people away from 4.3% actual vs 4.1% expected
  • I am all-in on DOGE.  I can’t remember a single government project as exciting as this.  The best book I’ve listened to this year was the Musk biography.  This dude is obsessed with reducing costs.  I am skeptical he can be as effective with a giant bureaucracy, but any progress is better than none.  Remember when he fired most of the engineers at Twitter and we all assumed it would collapse?  In his biography, the process behind that decision was laid out. It was not knee jerk, but it was quick. Once he concluded they weren’t writing enough code, they were gone.  Our government will benefit from a similar examination.  Like my ex, the US has a spending problem, not an income problem.
    • Similarly, appointing David Sacks as AI/Crypto Czar is about as business friendly as you can get.  Anytime we slap a restrictive regulation on AI, ask yourself if China is holding back in the same way and whether we can afford to fall behind.

What if Friday’s news was based on the unemployment rate report instead of the non-farm payrolls report?  Here’s what an article might have looked like…


Another 355,000 Jobs Lost

The labor market deterioration accelerated in November as the economy shed another 355k jobs.  


The unemployment rate ticked up to 4.2% but benefitted from rounding down.   The true print was 4.246%, which gets reported as 4.2%.  Had just 6,700 more people reported being unemployed, the headline UR would have been 4.3%.  It was 3.3% a year ago.  


Over 7.1 million Americans are now unemployed, an increase of nearly one million from last year. The number of workers settling for part-time jobs due to weak economic conditions has ballooned to 4.5 million, up from 4.0 million last year.


Long-term unemployment, a key indicator of structural labor market problems, is up 41% over the past year. 1.7 million workers have now been jobless for over 6 months, up from 1.2 million a year ago.


The employment-population ratio continues its worrying decline, dropping to just 59.8%. More Americans are simply giving up looking for work, with labor force participation falling to 62.5% - extending a concerning downward trend that began last December.


The unemployment to employment ratio, which measures the % of unemployed that became employed last month.  Excluding covid, it’s at its lowest level in 10 years.

 

 

Against this backdrop, it’s no surprise market odds for a cut on the 18th stand at 86%.

But you didn’t get that article. Here’s what you got…

 

 

Let’s consider a more balanced review in The Good, the Bad, and the Ugly.

The Good

  • Headline NFP beat expectations at +227k
  • Job openings rebounded to 7.74M
  • Quits rate edged up to 2.1%, suggesting workers still have some confidence
  • Layoffs remain low at 1.63M, below pre-pandemic average
  • Census Bureau survey shows firms planning to increase headcount over next 6 months

The Bad

  • Nearly half of job gains came from government (+33k) and healthcare (+72k)
  • Overall hiring rate fell to 3.3%, lowest since June and comparable to 2013 levels
  • There were 883k more Americans employed this time last year
  • Private sector employment has been stagnant since March while government hiring surges
  • Professional services hiring has collapsed to 2008-09 recession levels (4.3%)
  • Job openings still down 36.4% from March 2022 peak

The Ugly

  • Household Survey shows employed persons dropped by 355k
  • Full-time jobs fell 111k, part-time down 268k
  • Multiple job holders increased by 275k
  • Permanent layoffs trending higher, now above 1% of labor force
  • Average monthly job revisions of -36k since December 2022, a level rarely seen outside recessions

 

Rates

One of my favorite graphs is SMBC’s correlation of Fed Funds to “labor market slack”, which they define as the number of private job openings per unemployed worker. It implies another 50bps of cuts by May 2025, which would put Fed Funds at 4%. This feels about right to me. I think the Fed wants to get to 4% and then start evaluating on a more nuanced, meeting by meeting, approach.

 

 

But what about the 10 Year Treasury? Sticking with SMBC’s analysis, they project the T10 falling below 4% in the weeks ahead given the high correlation between oil and rates.

 

 

The Week Ahead

Big week as the market jostles ahead of the last FOMC meeting of the year. The headline will be Wednesday’s CPI report. This is the only thing that would cause a shift towards a December pause at this point.