This morning, the Bureau of Labor Statistics (BLS) released “The Employment Situation – May 2024.” Investors had been anxiously awaiting the report in hopes it would give the Federal Reserve a clearer path to cut the overnight rate, sooner rather than later.
Unfortunately, it failed to do that.
While the official Unemployment Rate ticked up slightly to 4%, the U.S. economy apparently created 272K net, new payroll jobs last month. This was much higher than industry ‘experts’ had predicted. What’s more, the average hourly earnings component of the release was also higher than expected. As a result, and as I type here today on June 7, 2024, the Fed Funds futures market has slashed rate cut expectations.
Increasingly, it looks iffy if the Fed is even going to cut rates at all this calendar year.
After all, a 4% unemployment rate is still miserly by historical standards. Further, as everyone knows, inflation continues to be a problem for the American consumer and businesses. In essence, there is nothing in the data which suggest the Fed needs to be in a hurry to do anything other than drink coffee and eat doughnuts at upcoming policy meetings.
That doesn’t mean all is well in the world.
In this business, it is incredibly tempting to let your eyeballs influence your economic predictions. For instance, for some time after the 9/11 terrorist attacks, research from the larger New York based firms was decidedly negative in its outlook and tone. This was completely understandable. However, the rest of the country was humming along rather nicely, all things considered. As such, investors were reading one thing from their advisors and experiencing something very different in their personal lives.
I could argue the same is happening today, only in reverse. Just as things weren’t as bad as they might have seemed in 2001-2002, they aren’t quite as good as the data suggests in 2024. Or perhaps I am committing the economic sin of letting my eyeballs influence me.
Recently, my wife and I helped move our daughter from Charleston, SC, to Chicago. In case you wondered why there wasn’t a Common Cents last week, it was because I was behind the wheel of a U-Haul truck when I would have ordinarily been typing. Let’s just say, the 11+ hours it took to get from Mount Pleasant to Sellersburg, Indiana, weren’t the most intellectually stimulating, all the more since the vehicle didn’t have Bluetooth and I had forgotten my ear buds.
Trust me, when you are alone in a truck, you can only sing “America” by Simon & Garfunkel (a cappella) so many times before you start to lose your marbles.
We had chosen Sellersburg as a stopping place because it is on I-65, and, according to Google maps, it is a little less than 5 hours to our final destination. Further, Beth was driving our SUV up from Birmingham, filled with stuff that had been in our garage, and it would be a relatively straight-shot 6 hour drive for her. Finally, not even our directionally challenged 25-year old, who was a few hours behind me, could miss it.
As an aside, I strongly suspect smartphones have detrimentally impacted the younger generations’ ability to actually navigate. However, that is really neither here nor there.
In any event, we stayed at the sumptuous Ramada Inn right off the interstate. It is right next to the Cracker Barrel and just down the street from the cemetery. You can’t miss it if you use your eyeballs, but you can if you listen to Siri or whatever voice your map app uses. Again, trust me.
Not feeling like getting back in the car, Beth and I walked across the parking lot to the Cracker Barrel to have dinner. By this point, it was roughly 6:45 pm. Not so long ago, this place would have been jammed packed, and I mean groaning with people. They would be waiting in the rocking chairs out front, playing checkers or milling about the gift shop which sells Americana tchotchkes made in China.
Oh no, not last Friday night and not in Sellersburg. There were only a handful of cars in the parking lot. No one in the rocking chairs. No one playing checkers, and only a handful of people in the store. The hostess sat us immediately. Looking around, I imagined the restaurant was perhaps 40% full, and I was being very charitable.
However, what man doesn’t feel magnanimous when he is treating his woman to dinner at Cracker Barrel and a night at the Ramada off the interstate?
The entire time we were eating, I kept thinking how the restaurant won’t be able to stay in business if this was their normal Friday night turnout. I even mentioned this to Beth, maybe more than once, but she didn’t find it as fascinating as I did. Perhaps bizarre is the better word.
There was nothing unusual about the place. The cheesy store and country-style menu were the same as at any other Cracker Barrel. The wait staff had on the same brown aprons, and all the tables had the game with the golf tees on them. In no uncertain terms, this was a standard Cracker Barrel, on a Friday night, and it should have been bursting at the seams.
It wasn’t, but why? Have American taste buds changed that dramatically in such a short period of time? So that the masses now shy away from fried chicken, meatloaf, country-fried steak and the promise of an all-day breakfast? I don’t think that is it. Is it because folks have tired of the cornball stuff in the gift shop? No, I don’t think that is it either. If for no other reason, where else are you supposed to find butter rum Lifesavers?
Or could it be that Cracker Barrel’s core market, which – I would argue is in the 30-70% household income bracket, is getting crushed? Regardless of what the official inflation data says?
To that end, the next morning, I was up before the break of dawn. In order to not wake the two sleeping beauties in my room, I went downstairs to get a cup of coffee. Mind you, I hadn’t shaved in a couple of days, and was still pretty ratty from the previous day’s long drive. So much so, I suppose I looked rather forlorn sitting by myself. This nice fellow named Ralph sat down to talk with me. Although I was indeed one, this fellow Ralph has likely never met a stranger.
To put it bluntly, he was what Upper East Side residents undoubtedly imagine when they think of Southerners, if they ever do. He had a scruffy beard, a big paunch and about half of his teeth. His drawl was such, while I could understand him just fine, Vermonters would probably need an interpreter to understand him. He was in town from Clarksville, TN, to attend a family reunion in Harrison County, Indiana, and, let’s just put it this way, Ralph could talk the horns off a goat.
At some point in our mostly one-sided conversation about the current state of affairs, I mentioned my experience at the Cracker Barrel next door. He just kind of smiled, but it wasn’t a happy smile, and said: “[Heck] That don’t surprise me none. I don’t go to Cracker Barrel no more. Who in the [heck] can afford it? Ain’t nothing that special about their food. We can fix it ourselves at the house.”
When one person says something like that, it is their problem. If enough people say it, it is the restaurant’s problem. If everyone is saying it, it is the economy’s problem.
As fate or circumstances might have it, I was something of a magnet for people wishing to vent their spleen about inflation while on my, shall we call it, sojourn. No, people weren’t tracking me down in the street for an analysis of the Consumer Price Index (CPI). However, I suppose I had, all told, from Wednesday night in the airport through Tuesday pulling into my driveway, no fewer than 4 conversations with people who mentioned how inflation, of some fashion, was impacting them.
That is 4 more than I would have had 5 years ago.
From the inability to buy a home despite making a decent wage, to not eating at Cracker Barrel, to not being able to fill up their refrigerator, to watching people having to return items at the grocery and other small comments about how “everything is so expensive.” A lot of people had inflation on the brain, and not in a good way.
In the end, as I started this week’s missive, it is tempting to let your eyeballs influence your economic predictions. However, a single personal anecdote is little more than a solitary tile in a much larger mosaic. Two, three or even four don’t create a full picture. It takes thousands, if not millions, of them to do so. No one has so many on their own.
However, if I were a betting man, and I suppose my profession makes me such, I would be willing to plop a little money down on things not being as good as the official data says they are. That goes for this morning’s Employment Situation report and a host of others.
No, the sky isn’t falling. Far from it. However, it sure would be nice for guys like Ralph to be able to afford eating at the Cracker Barrel again.
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 any 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.