Non-Seasonal Adjusted Jobs Data Shows a Not So Hot US
By Victor Sperandeo with the Curmudgeon
The ADP employment report released Thursday showed a +497,000 increase in jobs. Yet on Friday, the BLS reported Non-Farm payrolls rose +209,000 (Seasonally Adjusted) in June with only 149,000 private sector jobs created. Who’s right?
Let’s explore jobs, CPI, upcoming Fed meetings and the impact on financial markets in this post.
Analysis of BLS Jobs Report:
Jobs added in June were nearly +100,000 positions below May’s stronger-than-expected showing of +306,000 and fell below economists’ expectations for a net gain of +225,000 jobs.
It’s the lowest monthly gain since a decline in December 2020, and — excluding the losses seen during the first year of the pandemic — June’s jobs added number is the smallest since December 2019.
Also, the BLS revised down new jobs created from the last two months by -110,000. The change in total nonfarm payroll employment for April was revised down by 77,000, from +294,000 to +217,000, and the change for May was revised down by 33,000, from +339,000 to +306,000.
Therefore, BLS now says that from January to June of 2023 an average of +244,000 monthly new jobs were created.
However, if you use the actual Non-Seasonal Adjusted (NSA) numbers and deduct the Birth Death Model estimated +638,000 (NEVER counted Jobs) you get an average of +163,500 monthly new jobs for 2023 till June 30th. That clearly shows the job market is not as “hot” as the MSM says it is. Yet pundits continue to argue the labor market is super strong?
The Federal Reserve Board places a great deal of emphasis on the BLS numbers to formulate their monetary policy (which is now focused on raising interest rates). So, it would seem obvious that “accuracy” be tantamount in the BLS calculations.
For example, the May BLS jobs report showed an outsize gain of +339,000 in payrolls, but its Household survey showed the number of employees plunged that month. That’s a huge discrepancy!
For these and other reasons, many economists and market analysts are now questioning the BLS jobs numbers.
The Next CPI Report:
The CPI report for June 2023 will be released on July 12th.
Nowcasts from the Federal Reserve Bank of Cleveland estimate that CPI inflation will come in at over 0.4% for the month of June 2023.
Economists forecast that the CPI will increase 3.1% year over year (YoY), nearly a full percentage point less than in May.
The core CPI, which excludes volatile food and energy prices, is seen rising 5%, three-tenths of a percentage point less than previously.
The CPI is at its lowest level since March 2021, and the core CPI lowest since November 2021. We noted the declining CPI and PCE (the Fed’s favorite inflation gauge) in last week’s column which you can read here.
Outlook for Future Fed Meetings this Year:
According to the CME Fed Watch Tool, there’s a 92.4% probability of a 25bps Fed Funds rate increase at the July 25th -26th FOMC meeting. Fed officials continue to talk up more rate hikes this year.
Federal Reserve Bank of Chicago President Austan Goolsbee, a voting member of the Fed committee that decides interest rates, said in an interview Friday that he sees “a decent chance of further tightening down the pipeline” and that inflation “needs to come down more.”
Other Fed officials have struck a similarly hawkish tone on inflation, hinting strongly at a hike in July and another in September.
So, we have the Fed playing a Nostradamus soothsayer? How do they know what will occur in the U.S. economy in the coming months?
Impact on Financial Markets:
The Fed’s mere threats are causing the debt markets to price in two more rate increases this year. Rates have been rising sharply since the last FOMC meeting on May 3rd.
On May 4, 2023 (1 day after the Fed meeting), the 6-month T-Bill yielded 5.04% and the one-year bill yielded 4.59%. As of Friday July 7th, the 6-month T-Bill yield is 5.53% and the one-year T-Bill is at 5.41%. That’s an increase of + 0.49 bps and 82 bps, respectively!
The 2 Year T-Note yielded 3.729% on May 3rd but touched 5.12% earlier this week- the highest level since June 2007.
Now consider the 10-year yield, which was 3.37% on May 4th but jumped to 4.06% on Friday July 7th. That’s a +69 bps increase in three trading days!
Meanwhile, the 2-year vs 10-year U.S. Treasury yield curve is now the most negative since 1981 as per this chart:
More interestingly… the S&P 500 is +8.32% from May 4th to July 7th while the NDX 100 is +15.82%!
That’s a dilemma for the Fed, as rising interest rates seem to be a huge plus for mega tech stocks, yet they’ve caused short term and intermediate interest rates to rise. The latter weakens the economy, killing small business and making financing much more difficult for home and car buyers.
The BLS jobs numbers and CPI are mere apparitions of inflation, while Fed rate increases are very real and lethal!
Why doesn’t anyone in Congress object other than Elizabeth Warren, U.S. Senator from Massachusetts?
“Speculation is a hard and trying business, and a speculator must be on the job all the time, or he'll soon have no job to be on.” Jesse Lauriston Livermore
Be well, stay safe, success, good luck and till next time……
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Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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