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Payroll Expectations Were Way Too High

The jobs report came out today. The 199k job growth was WAY below what the “expectations” were. But those expectations were a joke. There is no way to grow our economy 800k jobs at 4.3% unemployment.

Here’s a dot plot from the last recovery (2010-2019) when the employment rate was under 7%. The y-axis is payroll growth and the x-axis is the unemployment rate.

As one would expect, as unemployment goes down, payroll growth slows. This is simple math: the less unemployed, the less payrolls can grow.

At 4.3% unemployment – which is where we were last month, the linear trend would say our job growth would have been … 195k jobs. Right what we had.

We are running out of workers. We are now only 0.3% away from the lowest unemployment of the last cycle.

By Christopher Schwarz, ago

The Music Is Starting to Get Softer…

As bad as it may feel, markets this year are only down 1-2%. Some underlying “delusional dream” stocks are down 10-20%. Crypto is working its way to the crypt. One can start to sense the crazy factor is running out of time.

I’ve posted this graph several times now but it is worth showing again. This the ratio of the NASDAQ and the NYSE.

This ratio is still at all all time high. My guess is it will mean revert over time.

The issue is many people – likely retail investors – don’t realize that the trends from the pandemic are not permanent. All the pandemic did was pull demand forward. Who hasn’t subscribed to Netflix? Anyone still not using Zoom? Where is future growth going to come from?

And tomorrow there will be more evidence the Fed is going to raise rates. The unemployment rate could very well be below 4%. The labor market’s first derivative is too high. We’re going to run out of people very quickly.

And it’s also clear that there is not a lot of checks coming to people. Fiscal stimulus is probably dead until at least after the midterms. And given Democrats will likely lose one part or more of Congress, that gravy train is likely passed as well. No more stimulus checks will reduce demand for lots of things… including retail favorite stocks and crypto.

The bottom line is those expecting a repeat of 2020 and 2021 in terms of financial returns are likely to be very, very disappointed. Maybe not today. Or tomorrow. But the music is starting to stop.

By Christopher Schwarz, ago