Labor markets are clearly weakening in both ADP and BLS payroll reports. A measure of Quits says the same thing.
One key difference between the two reports is the BLS includes government jobs whereas ADP doesn’t.
And either seasonal adjustments went haywire in January and June or government jobs went haywire in those months. I suspect seasonal seasonal adjustments or both.
Today, ADP released its National Employment Report for November. The BLS reports Nonfarm Payrolls and employment levels on Friday.
The Job Boom is Behind Us
“Restaurants and hotels were the biggest job creators during the post-pandemic recovery. But that boost is behind us, and the return to trend in leisure and hospitality suggests the economy as a whole will see more moderate hiring and wage growth in 2024,” says Nela Richardson, ADP Chief Economist.
ADP Month-Over-Month Change
Leisure and hospitality, a big driver in employment for years, took a dive in November according to ADP.
Are people eating out less? I would suspect so with costs soaring along with minimum wages.
And Manufacturing is down 15,000 despite a UAW strike settlement.
Pay Growth Continued its Slowdown in November
- Job-stayers saw a 5.6 percent pay increase in November, the slowest pace of gains since September.
- Job-changers, too, saw slowing pay growth, posting pay gains of 8.3 percent, the smallest year-over-year increase since June 2021.
Job Switching Premium
ADP notes “The premium for switching jobs is at its smallest in three years of
data.“
The switching premium is down and the risk of a slowdown is rising. So, more people are staying put. This shows up in quits reports.
A Big Decline in Quits Suggests the Labor Market is Back to Normal
Quits are hard data and provide a better measure of the labor market than openings. But what’s next?
Yesterday, ahead of this ADP report, I commented A Big Decline in Quits Suggests the Labor Market is Back to Normal
Quits Declines from Highs
- Leisure and Hospitality: 922 to 751, an 18.5% decline.
- Accommodation and Food Service: 848 to 674, a 20.5% decline.
- Education and Health Services : 675 (a recent high) to 560, a 17.0% decline, but still elevated. 516 is the highest pre-pandemic number in a set that is otherwise below 500.
- Retail Trade: 755 to 492 (well below pre-pandemic norms), a 34.8 percent decline. These people appear stuck with limited offers elsewhere.
- Manufacturing: 339 to 225 (slightly above pre-pandemic norms), a 33.6 percent decline.
- Construction: 260 to 173 (mostly below pre-pandemic norms), a 33.5 percent decline.
Nirvana?
If you believe in the soft landing theory, we will now live happily ever after.
I don’t. Portions of the economy are severely distressed including commercial real estate and manufacturing.
ISM Manufacturing Contracts for the 13th Consecutive Month, Order Backlogs Plunge
The ISM manufacturing report for November is dismal. The headline number didn’t change but details look worse.
For discussion, please see ISM Manufacturing Contracts for the 13th Consecutive Month, Order Backlogs Plunge.
Manufacturing is a bigger portion of the economy that widely believed. It creates the goods that consumers buy.
And in the services sector, prices have risen 78 consecutive months according to the ISM.
For discussion, please see ISM Services in Positive Territory, Up Slightly, Much Better Than Manufacturing
Residential housing is stressed in a different way.
Home Prices Hit a New Record High According to Case-Shiller
Thanks to Fed policy, existing-home sales are in the gutter and likely to remain so. Yet, prices are in the stratosphere.
For housing discussion, please see Home Prices Hit a New Record High According to Case-Shiller, Thank the Fed
This is not a Nirvana setup. The Fed is walking a tightrope. The only questions are when and how the Fed makes another policy error and in which direction.
Everyone but the Nirvana believers are speculating on which way the Fed errs. I sure don’t know. And no one else does either.
But expect a mistake. The Fed has a long history of them.
The Congressional Budget Office is predicting a US deficit of $2 TRILLION every year for the next 10 years. Whys isn’t EVERYONE talking about this? It is truly ASTONISHING.
I reckon we’ll soon go back to deflation and massive money printing to try and keep bond yields down. How can this not ultimately end in a dollar collapse and hyperinflation?
NO worries ; -10% interest rates in combination with a 20% deficit wil kick start the economy again! Won t it ?
The shortage of skilled workers is permanent for a generation. Have you spoken to any recently graduated woke college participation awardees?
Unless savings are expeditiously activated, put back to work, a dampening economic impact, a deceleration in money velocity, is engendered and metastases, resulting in secular strangulation.
The expiration of the FDIC’s unlimited transactions deposit insurance in December 2012 is prima facie evidence (it caused the “taper tantrum”), as I predicted in Dec. 2012 (re: my “market zinger” forecast – a surprise, shock, or piece of electrifying news). This dramatically raised the real rate of interest for saver-holders.
“We’re close to seeing the real power of QE3…R-gDp is likely to accelerate earlier and faster than anyone now expects. The RoC in M*Vt before any new stimulus is already above average. With low inflation (given some deficit resolution), Jan-Apr could be a zinger”
I.e., the transactions’ velocity of money was increased at the same time the roc in the money stock was tightened.
Link: link to fisherinvestments.com
Link also: Optimal Premiums for the Deposit Insurance System: An empirical work on the deposit insurance system of Japan
As Daniel Dimartino Booth, in her book, gets backwards: “Fed Up”, pg. 218
“Before the financial crisis, accounts were insured up to the first $100,000 by the FDIC. That limit kept enormous sums *in the shadow banking system* (which was a good thing)
But savers never transfer their savings outside of the payments system unless they are hoarding currency, or convert to other national currencies, e.g., FDI.
According to Corwin D. Edwards, professor of economics:
[Edwards attended Oxford University in England on a Rhodes scholarship and earned a doctorate in economics at Cornell University. He spent a year teaching at Cambridge University in England in 1932. He taught at New York University in 1954, the Chicago School from 1955-1963, the University of Virginia, and the University of Oregon from 1963-1971.] —
The U.S. Golden Age in Capitalism was driven by “increased money velocity which financed about two-thirds of a growing GNP, while the increase in the actual quantity of money has finance only one-third.” In other words, in contrast to today, the ratio of the money supply to GNP had fallen.
I.e., the long-run neutrality of money is fallacious.
Link: “Changes in Wealth and the Velocity of Money”
link to files.stlouisfed.org
This conclusion is at odds with Bernanke’s thesis: Bernanke, pg. 287 in the Courage to Act, “Lower long-term rates also tend to raise asset prices, including house and stock prices, which, by making people feel wealthier, tends to stimulate consumer spending-the “wealth effect”.
One can’t help but notice the large increase in educational health services employment. These are two sectors with extremely low productivity. We spend more per capita on education and health than any other nation, yet we have the least educated and sickest population. Of course the government is highly entrenched in both these sectors which explains much. The net result of this will be a lowering of our standard of living.
Just more inflationary depression and eventually shortages.
Most investors don’t find that important.
In spite of the decline in job openings, we have to keep things in perspective. There are still 1.34 job openings per unemployed individual, which still qualifies as an overheated job market.
IF you believe the numbers and none are phantom jobs
“The only questions are when and how the Fed makes another policy error and in which direction.” As I said before the Fed is likely to err anytime it makes a move.
A number of us in the tech industry are getting the axe. The semiconductor company I worked for is nearly out of money after nearly 20 years in business, laying off most (about 100) of their work force, mostly engineers. The place I worked previously has shut down its Austin, Texas facility to consolidate, axing another dozen engineers. A former co-worker in Phoenix with 24 years engineering experience has been laid off, as they’re consolidating their remote workers. All of these are private sector entities.
It could be just the time of the year, but I’m not getting a good feeling from the Austin, Texas or remote job market: few follow-ups and even fewer interviews. I switched jobs back in December ’21 and had multiple offers, but not this year.
Thanks for sharing and best of luck
Semis are on a plateau but these are signs mire downward trend is coming. I am also seeing a lot of insider stock sales. Billionaires are also selling their sports frachises for literally nothing but cash which tells you they believe a long term top has occurred in sports and values will plummet soon.
Even though I agree with national data showing a slowing economy, my job search has been very busy. I kicked off my job search a week ago. I’ve had 30 something emails. I’ve whittled them down to a handful of really good matches resulting in 3 initial phone screens and 3 follow up video interviews scheduled. Just as with the housing market, some regions in the labor force are leading and some lagging. I think my area has peaked, but only recently. I’m not looking for more pay, just a lateral move to keep my career going.
I have received multiple emails from different agencies for the same position. One agency had two different recruiters send the same job description within minutes of each other. And then there were 2-3 positions completely unrelated to my skills. The recruiters I’ve talked to on the phone have been cheerful and even laughed. I interpret this as business is going well enough that they have no worries.
So, what’s the actionable course here? What am I going to do differently going forward? Why nothing. I’m going to hold my Portfolio & rebalance as the metrics demand. Make sure that you can hold whatever you pick for a portfolio through both good times and bad. That is all.
Agree. I have been selling into strength recently, raising my cash position. I started putting “some” of that cash to work into the quality oil stocks that went on sale the last two trading days. CHORD, FANG, CNQ, CVE, TOU (TRMLF), MEG (MEGEF). Most will be short term trades but some will be held as part of my longer term play on oil stocks.
Going forward, I expect continued slow growth.
Colombia’s Ecopetrol looks like a bargain to me …..Being primarily a bond investor, I know the company quite well, stock s up 30% this year, been flattisch though in recent years, pays 20% div….
Fwiw we are hiring again after a period of no hiring. This is in the semis and data center market. Business is actually ticking upwards again after a slide in 2022 and 2023.
The risk of policy errors are minimal given rates have already been hiked and the economy has cooled.
What’s next is a return to the low growth and slow growth economy of the 2010s. This is because of age demographics.
I see no rate cuts or hikes going forward.
We’ll get crowding out of the private sector, and stagflation, business stagnation accompanied by inflation.
The economic engine is being run in reverse. The Keynesian economists have achieved their objection: that there is no difference between money and liquid assets.
Means-of-payment money hasn’t increased for 20 months. But the composition of the money stock has changed. And that will add a premium to interest rates (reversing the 39-year bull market in bonds).
The FED’s Ph.Ds. don’t know a debit from a credit. Contrary to Dr. George Selgin, all monetary savings, income not spent, originate within the payment’s system. There is just a shift between transaction’s deposits and gated deposits.
There is a one-for-one correspondence between demand and time deposits (as loans/investments = deposits). As time deposits are grow, transaction’s deposits are depleted (currency notwithstanding). The source of time deposits (savings-investment type accounts), is other bank deposits, directly or indirectly via the currency route or through the DFI’s undivided profits accounts.
It is a universal delusion that banks lend deposits. No, deposits are the result of lending/investing.
Banks don’t take deposits. Banks don’t lend money. – Educated in Law Richard Werner
‘Big banks are a cancer on society’.. Professor Richard Werner
Was just reading Washington’s “development economics” is actually designed to prevent development and The expert who pioneered ‘quantitative easing’ has seen enough: Central banks are too powerful and they’re to blame for inflation Richard Werner, smart guy
Quits are seasonal. Most are hesitant to quit before the holidays and winter weather. One month of reduced quits in this season is not a data point to hang your hat on.
Productivity and unit labor costs:
“The final revision to Q3 Productivity was also better than expected: +5.2% is 30 basis-points (bps) higher than expected, 50 bps above the previous print. It’s the best quarter for productivity since we first emerged from the Covid pandemic back in Q3 2020. Unit Labor Costs also presented good news: with -1.2% revised down from the previous -0.8% — the biggest drop since Q4 2022. As any Econ 101 student knows, higher productivity and lower wage costs make for a stronger economy. Mark another notch for staying out of a recession.”
Productivity goes up in recessions. It would also start to rise if no one new is hired.
As the 1959 economic syllogism posits:
#1) “Savings require prompt utilization if the circuit flow of funds is to be maintained and deflationary effects avoided”…
#2) ”The growth of commercial bank-held time “savings” deposits shrinks aggregate demand and therefore produces adverse effects on gDp”…
#3) ”The stoppage in the flow of funds, which is an inexorable part of time-deposit banking, would tend to have a longer-term debilitating effect on demands, particularly the demands for capital goods” (as CAPEX declines, so does productivity)
It’s stock vs. flow. Take for example Japan’s lost decade: “Japanese households have 52% of their money in currency & deposits, vs 35% for people in the Eurozone and 14% for the US.”
Take the “Marshmallow Test”: (1) banks create new money (macro-economics), and incongruously (2) banks loan out the savings that are placed with them (micro-economics).
F. Scott Fitzgerald: “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”
You have to retain the cognitive dissonance capacity, like Walter Isaacson described Albert Einstein’s ability: to hold two thoughts in your mind simultaneously – “to be puzzled when they conflicted, and to marvel when he could smell an underlying unity”.
John Maynard Keynes couldn’t do it:
A canary in the economic coal mine in my area is the drive through coffee outhouse business. It’s the ultimate “Stupid Money” discretionary income luxury. Seeing way shorter lines of folks getting their 450 calorie $5.50 coffee drinks. A local chain just closed a sit down location in town..no real reason given but I’d bet the bloom is off the biz’s rose. I’d add that Black Friday shopping was intense, countering predictions of soft sales activity on BF. Many were vacuuming up available deals.
Coffee shop, pub closures might be an indicator which I also notice, but around here it’s rising rents, and not even $5.50 coffee can pay for it.
Rising rents chasing the tail of the rising minimum wages on the West Coast, too.
I wouldnt call the worker/jobs available situation over quite yet. If you look at when births happened in the last 75 years, you will find that, this year (2023), the number of people hitting 65 and 16 have peaked. While 65 doesnt mean much, the number of kids hitting 16 will drop every year for the next 15. Every year after 2023, there will be fewer and fewer 16 year olds. By the same token, the number of 50 year olds will rise and rise, but they arent exactly the most motivated workers. Mish is commenting within the scope of a pandemic. Fewer and fewer kids means fewer and fewer workers, and not all of those jobs can be automated.
Powell has nothing to do with it. When all else fails, they take you to war.
“Why of course the people don’t want war. Why should some poor slob on a farm want to risk his life in a war when the best he can get out of it is to come back to his farm in one piece? Naturally the common people don’t want war neither in Russia, nor in England, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship.
Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country.”― Hermann Goering