This morning, the Bureau of Labor Statistics (BLS) released “The Employment Situation – October 2024,” otherwise known as the jobs report. Unless you are a complete Pollyanna, it wasn’t good. The U.S. economy apparently created 12K net, new payroll jobs.
That is about it for the good news.
Conversely, the private sector actually shed 28K.
You don’t have to have a PhD in anything to know the economy isn’t hitting on all cylinders when corporate America is cutting headcount.
Of course, you could argue the actual number could be anything, considering the way the BLS has been revising its data this year.
- To that end, it lopped another 81K jobs off the August number, taking it down to 78K.
- September’s estimates got off comparatively light, suffering only a 31K payroll decline to 254K.
However, the BLS officially has another month to revise the September numbers, and the “low-hanging fruit” bet is that it will. Only The Shadow knows by how much and how long that revised estimate will stand.
Then, there is the curious difference between the ‘household’ and ‘establishment’ data sets. As I have written in this newsletter in the past, the former tracks the responses from workers, and the latter from employers. But why curious? Well, the Household Data suggests the U.S. economy has created around 216K jobs over the last 12 months. Conversely, the Establishment Data estimates the economy has added 2,173K workers to payrolls over the same time frame.
That is quite the discrepancy, and begs two questions or a combination thereof:
- The methodology is flawed, and/or;
- Someone isn’t telling the truth. Workers, employers or the BLS. Take your pick.
I have been in the financial services industry since 1991, and have been doing macroeconomic work, on some level, since 1993. This means I have read, gone through or otherwise analyzed in excess of 350 “jobs reports” in my career. It has only been over the last 12-18 months, roughly, that I have called into question the reasonableness of the data in these reports.
Hey, it isn’t just me. The median estimate in the Bloomberg analyst survey was for job growth of 100K in October, with a standard deviation of around 35K. As such, the official number was over 2 standard deviations to the left. Of the 10 “The Employment Situation” reports thus far this year, only June’s original stated payroll growth was within 1 standard deviation of the median ‘stab in the dark.’
Now, these are pretty bright people throwing darts at the board. The good ones look at a fair amount of data to determine their predictions, or at least they used to do so. Further, due to a variety of reasons, historically, the jobs number doesn’t normally lurch wildly from month to month. On occasion, without a doubt. But for some of the brighter minds in the financial industry to be consistently wrong? As in, 2-5 standard deviations away from the median?
As a point of comparison: in 2006, the last calendar year I participated in the Bloomberg surveys, the median analyst estimate for payroll growth was within 1 standard deviation of the median 5 times. Yes – we whiffed a few times too, and badly. However, collectively, we were a veritable Nostradamus compared to the lot these days.
This is important.
People try to predict the jobs number in order to get a sense of the future direction of interest rates. Guessing correctly can make a significant difference in the performance of investment portfolios.
Obviously, this means real money to real people, and potentially lots of it. By lots, we are talking about literally millions of dollars at a firm our size, even in the tens of millions, over the span of 12-months.
Seriously.
So, when the data is impossible to predict and the discrepancies between the surveys are inexplicably wide, it can, let’s just say, cause some level of consternation. Fortunately, we tend to “skate to where we think the puck is going to be,” as opposed to feverishly react to individual economic reports. Our contention has been, for some time, that the labor markets are slowing down, whether the official data cooperates or not. Laughingly, there are simply way too many anecdotes for them all to be anecdotal.
My musings and misgivings about the data aside, this morning’s report all but guaranteed another rate cut at next week’s Federal Open Market Committee (FOMC) meeting.
IF the Fed doesn’t lower the target overnight lending rate by at least 25 basis points (0.25%), I will let, say, either Jim Williams or Janet Ball hit me in the face with a pie. Said pie would have to be of my choosing, as I wouldn’t want one of them to pull something straight out of the oven.
Further, one would have thought such a bad report, a harbinger of slower times ahead, would benefit the bond market. After all, interest rates typically go DOWN when the economic data is weak or weak-ish, right? This is in anticipation of reduced demand for money moving forward. And, as we all know, when interest rates go down, bond prices go up.
But this hasn’t been the case today. Nope. The bond market rallied after the report. However, things deteriorated relatively quickly, particularly on the long-end of the yield curve.
- To that end, at 7:52 am CDT, the “ask” price on the current 30-Year Treasury Bond was 97-1 (97.03125). That would have equated into a yield of 4.43%.
- As I type here at 2:49 pm CDT, the ask is 94-26 (94.8125) which equates into a yield to maturity of 4.57%.
If you don’t follow the U.S. Treasury market closely, trust me when I tell you that is a pretty huge move in the long bond over the course of one trading session. But why?
Well, the prevailing logic is that Hurricanes Helene and Milton and the Boeing strike negatively skewed the labor market data, and things aren’t quite as bleak as the headline would imply. Once the bond market bought into that story, it ‘lost its bid,’ and buyers have been hard to find this afternoon. Fair enough.
But did those hurricanes make things out to be worse than they actually are?
A-ha. Therein lies a trap. If you are only looking at this ONE release, you could make a sentient argument that this is in fact the case. However, there has been no shortage of ancillary data which has suggested the BLS has been reporting inflated payroll numbers. Shoot, some of that data comes from the BLS itself. This is not a one-month trend.
The yawning gap between the two data surveys didn’t start in September. Neither did the paltry employment components of the various ‘purchasing managers indices.’ Let’s not forget the 50+% increase in announced layoffs over the last 12-months. All of it. The Establishment Data within “The Employment Situation” has been the exception, not the norm.
With that said, in all probability, the numbers will probably improve next month, at least the official ones, as hurricane-impacted and striking workers get back to their job.
Then, again, maybe they won’t. It is the BLS’ data and methodology, and it can do with them whatever it wants. Click on that URL if you feel like getting hot under the collar.
Have a great weekend.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.