American Jobs Report Recessionary?

Paul Revere rides toward Concord on April 18, 1775. (Courtesy the National Archives)

The Recession is coming, The Recession is Coming!!!

Paul-Revere
Paul Revere rides toward Concord on April 18, 1775. (Courtesy the National Archives)

61946218_10156525074133250_1358968059506720768_n
It only took a few minutes after the jobs report before I got the typical message that we are on the verge of the 1,389,903 recession forecast of this record expansion.  No wonder people are confused about the economy. The extreme ideological right and left have gone completely mad in reading economic data to push their agenda that the American public can’t get a sense of what is going on. I am honest here, the stuff is terrible out there. These people are so stuck on their ideological, economic belief that they have forsaken any honest take as they always take the dark side of the moon as their initial intellectual response.  In this madness, they ignore that the reading shows that.

– Longest job expansion ever recorded in history, 104 months, and counting. 

From Doug Short:

https://www.advisorperspectives.com/dshort/updates/2019/06/07/the-big-four-economic-indicators-may-nonfarm-employment
June Jobs Nominal

– Unemployment claims vs. the civilian labor force are at the lowest ever recorded in history.

From Doug Short:

https://www.advisorperspectives.com/dshort/updates/2019/06/06/weekly-unemployment-claims-up-another-3k
U claims

– Record-breaking job openings print in this expansion, over 7,600,000.  We have a big gap between openings and hirings 

From Doug Short:

https://www.advisorperspectives.com/dshort/updates/2019/05/07/job-openings-labor-turnover-clues-to-the-business-cycle

May JOLTS

– The longest economic expansion ever recorded in U.S. history.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/05/30/visualizing-gdp-an-inside-look-at-the-q1-second-estimate
June 2019 Q1 GDP 1st rev

With that said, let me give a taste of my forecasting.

At the end of 2017, my forecast was for yields to invert in 2018. Typically that is a recessionary forecast. I believe I was the only one on record to have that forecast that in 2017

“I am also looking for yields to invert in 2018.”

https://loganmohtashami.com/2017/12/31/2018-economic-housing-predictions/

At the end of 2018, my forecast was for the 10-year yield to go below 2% if world trade got weaker. I believe I was the only one on record to have that forecast in 2018

“For 2019, I am sticking to my call that the 10-year yield will channel between 1.60% to 3%.  If world trade gets weaker, we could see the 10-year yield with a 1% handle again.”

https://loganmohtashami.com/2018/12/29/2019-economic-housing-predictions/

I had never once strayed away from my inverted yield curve stance one time in 2018, and today, I always stress that I genuinely believe we inverted the yield curve last year. Also, my own Fed neutral rate model is actually now in line with what the market is expecting with rate cuts now.

“The Fed Needs More Inflation: 2018 Edition” 

https://loganmohtashami.com/2018/11/29/the-fed-still-needs-more-inflation-2018-edition/

Still, even with all this, even with the weakness in the new home sales data late in 2018, and negative year over year prints on housing starts, I never ushered the R word. The ideological left and right cannot be trusted with economic data because they’re too emotional or financially motivated to express their view that they have lost the ability to read data correctly.

You lack discipline, and it makes you all very predictable.  3 of my 6 recession flags are up, but until all 6 are up, the banner of a recession call will not utter from my mouth. So, to my America recessionary bear friends, you need a better economic thesis for a recession call than today’s job print.

Today the Bureau of Labor Statistics reported job data for May 2019. Payroll jobs grew at 75,000, which means that the longest job expansion streak continues, now for 104 months. The job numbers were a big miss from expectations, and revisions were negative.

From BLS: 
https://www.bls.gov/news.release/pdf/empsit.pdf

“Total nonfarm payroll employment edged up in May (+75,000), and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in professional and business services and in health care.”

For 2019 I predicted this:

“I expect job creation numbers to fall but stay in the range of 137,000 – 157,000 per month.”

https://loganmohtashami.com/2018/12/29/2019-economic-housing-predictions/

Year to date we are averaging 164,000 a month. This still means the jobs data is outperforming my expectations.  If I used a 3-month average, we are right in line with my job growth expectations at near 151,000 per month.  If the year to date job growth data were under 78,000 a month, I would then be talking about real underperformance in a big way for 2019 even though that would be barely under the jobs needed for population growth. I stress that we are not at full employment yet but getting to a point where I would start talking about the real lack of labor issues. However, still, nothing in the data screams full employment just yet, just a tighter labor market.

This a breakdown of the jobs created for the last month. A heads up on the census hiring that should be coming up in the next few reports.

BLS:
https://www.bls.gov/charts/employment-situation/employment-levels-by-industry.htm

June Jobs

This is a look at the earnings breakdown for the previous month. In May, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to
$27.83

From BLS:
https://www.bls.gov/charts/employment-situation/employment-and-average-weekly-earnings-by-industry-bubble.htm

June wages jobs

Wage growth is running at 3.1% on a 12-month average. The 3-month average running at 2.5%. This means we have substantial real wage growth since headline CPI inflation has been falling from the recent highs but rising from its headline low as oil prices have increased since the recent low. Lower oil prices will boost the real average hourly wage data. Recently, oil prices have been fading a tad. Which is good for future headline wage growth.

Atlanta Fed:
https://www.frbatlanta.org/chcs/labor-report-first-look/?panel=1&s=tw

Atlanat wage growth June

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/05/10/consumer-price-index-april-headline-at-2-00

May CPI Short

One item I need to stress. One of the reasons why I don’t forecast big job numbers is that I do believe that we have a demographic limit on how many jobs can be created with over 157,000,000 Americans working. We had a PMI recession in 2016, and we lost some good producing jobs back then. Then as oil prices rebounded and world growth picked up, we recovered some of those jobs back. One of the most significant factors in my 2019 forecast for slower U.S. growth and one handle on the 10-year yield is that our PMI data was going to fall so it shouldn’t be a surprise that the rate of growth of good producing jobs is falling recently.  Try not to extrapolate too much out of this but know the limits of each job sector tied to its corresponding data. Since our PMI data was working from a high level, it had room to fall and still does, as it isn’t in a contractive phase yet. However, this is a core thesis on why the 10-year yield can get as low as 1.60% this year. If world trade gets weaker from here as well as our own domestic PMI data, yields can go lower.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/05/29/may-regional-fed-manufacturing-overview

June Manu

A must follow for anyone interested in labor data.

 

But year-over-year, the goods sector has been seeing dramatic slowdown (although now as of this month the service sector has seen its year-over-year growth rate tick down)

June Producitng MArtha
All in all everything in 2019 looks right to my forecast so forgive me if I am not screaming the recession is coming, the recession is coming.

Job growth continues to outperform my expectations. We are producing over double the number of jobs needed for population growth. This is an honest reflection of our American work ethic, especially considering the duration of this economic cycle. My lower GDP forecast for 2019 looks to be in line as well and still no recession yet.  As a financial community, we need to able to read a slower rate of growth data better and not overhype the story of the most exceptional economy ever. We have too many extremes out there and no middle game. The once-hyped U-6 rate is almost at an all-time low.

Today, the U6 Unemployment Rate is still below the pre-recession lows.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/06/07/may-jobs-report-75k-new-jobs-worse-than-forecast

June u6

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami