Common Cents & Surveys

Next week, Americans go to the polls. In my opinion, this has been the most contentious midterm election campaign in recent memory. By recent memory, I mean my adult life. Not surprisingly, both parties are attacking one another in an effort to get votes. The $64,000 Question is whose attacks will be most effective with that large segment of America which isn’t on either far-end of the political spectrum.

I am old enough to have learned to not put too much faith in the polls, taste tests, surveys, and the like. The reason being people are prone not to be completely honest with strangers who are asking questions. Seriously. You can call me a cynic if you like, but what is the upside to being candid with some dude from, say, Gallup?

Years ago, and I am talking decades here, I participated in the Pepsi Challenge on the quad at Wake Forest. This was during the heat of the so-called Cola Wars. If you are old enough, you might remember Pepsi’s whole pitch was more people chose its product over Coke in taste tests. Well, that didn’t sit well with me, as I had always been a big fan of the elixir in the red & white cans.

So much so, I had every intention of doing the test and showing those Pepsi goons what’s what. Don’t come around messing with this Bama boy and his soft drinks. Then I took the challenge.

They poured the two different sodas into those little cups for mouthwash you might find in the bathroom at a restaurant. I have had more communion wine than the amount they gave. Still, I had to choose, and being the clever cookie I am, I had a plan. It was a good one.

You see, I figured the whole goal was to trick the taster. So, if some 70% of people chose Pepsi over Coke, I assumed the small size was to get people to focus primarily on the sweetness. The sugar would trigger pleasure receptors in my brain, and Pepsi is simply a little sweeter than Coke.

As a result, I assumed I would almost instinctively opt for the sweeter product. In my estimation, there was no other way they could rig the taste test.  As such, I would simply “choose” the other one, which would have to be the Coke.

So, I downed sample A and then sample B. There was no doubt about it, I preferred the latter. However, sticking with what I thought was a foolproof plan, I told them I like A better. Care to guess what I chose? Oh, you know it. In front of about 25-30 people, I proclaimed I like Pepsi over Coke. Even better, they gave me rest of the can to take with me.

Joy, that.

Living where I do, the results of our statewide elections are pretty easy to predict. I don’t need a poll to know Gov. Ivey and Katie Britt are going to win in walks. I also don’t need anyone to tell me the 7th Congressional District in Alabama will elect a Democrat, and the other six will send Republicans to Washington.

It really is that simple here. However, it isn’t elsewhere. Is Lake going to beat Hobbs in Arizona? No clue. The whole Fetterman versus Oz brouhaha in Pennsylvania? I imagine more than a few people in the Commonwealth feel they are playing Russian roulette. Hassan or Bolduc in New Hampshire? Walker or Warnock? Vance or Ryan? Can a Republican be governor in Oregon or New York? Is that really feasible? How does Pritzker have a double-digit lead?

To be sure, I am going to be glued to the television on Tuesday night watching the results.

Equally confusing is the economic data. Are we in a recession or not? When is inflation going to start coming down? How many more bullets does the Federal Reserve have to shoot at the economy? How high can long-term rates go? Will collapsing commodity prices (ex energy) eventually make their way through to the end consumer? How much longer can the US dollar remain as strong as it is? Will the stock market rally the remainder of November and in December, like it usually does?

Inquiring minds want to know! Shoot, they have wanted to know all year, and the data keeps getting more difficult to discern.

Consider this morning’s Employment Situation report for October 2022. The headline number looked pretty good. The Bureau of Labor Statistics (BLS) announced the economy created 261K net, new payroll jobs last month. What’s not to like about that, huh? However, interestingly enough, it also reported the Unemployment Rate ticked up to 3.7% from 3.5%. Further, the Labor Force Participation Rate fell to 62.2% from 62.3%.

Hmm. If the number of people looking for work went down and the Unemployment Rate went up, it would seem the economy actually shed jobs in October. It is just math. But, how now brown cow? Didn’t the BLS announce 261K new jobs? That doesn’t make any sense.

A ha. The problem here is the BLS uses two surveys to compile the data. For the payroll jobs number, it calls actual employers and asks about their hiring practices. For the Unemployment and Participation Rates, it calls households and asks whoever picks up the phone their employment status. Sure, there is a little more to it than that. However, that is a good enough explanation for cocktail party conversation.

That is if you discuss the peculiarities in economic releases at cocktail parties.

With this in mind, imagine someone from the government contacts you about your employment status. Do you answer? Do you consider it really any of their business? Do you give them the complete and unvarnished truth? Do you tell them how old you are? What ethnicity? Your educational attainment? How much money you make? How many hours your work? Whether you are working full or part-time and why? What type of job you have? Whether you have served in the military? Your marital status?

Basically, do you tell them pretty much everything about you? More power to you if you do.

Being the cynic I am, I would imagine more than a few respondents aren’t completely forthcoming. Obviously, this will potentially paint an inaccurate picture of the true health of the labor markets. Don’t get me wrong, I am not implying the system is rotten. I am simply suggesting it is imperfect. It is a “good faith best guess” and not the absolute truth.

As a result, already confusing economic data gets a little bit more confusing. Further, that is how a seemingly good Employment Situation report isn’t as good as it may seem. Or is it? After all, the report is just a combination of a couple of surveys, and we all know how accurate those are.

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 any every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.

John Norris
Chief Economist & Survey Hater



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 those of our investment committee 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.