In Jobs We Trust? (original) (raw)

Happy Jobs Day Friday!This is what you've been waiting for all week. You know, because every week has its big event, thanks to our sensationalistic financial media. Do we think the results of this morning's government surveys for August job creation will be accurate? Actually, quite the contrary. We're quite confident that whatever numbers are reported from the Bureau of Labor Statistics, like just about every monthly print for non-farm payrolls since at least the start of 2023, the number posted will skew substantially higher than any human reality at ground level.

We also know that in all likelihood, whatever number that the BLS puts to the tape this morning will be revised lower next month and probably revised lower for a second time the month after that. Additionally, in about nine months, the BLS will release a quarterly report that warns us that job creation has been overstated, and then down the road after that, with a tremendous lag, there will be an annual benchmark revision that takes these numbers even lower. At that point, do we trust the thrice or four times revised number? I guess. Maybe.

The fun of it all, is that we know this has been the pattern month after month for almost two years. At least. Yet, when the jobs print crosses the tape this morning, high-speed keyword-reading algorithms will kick in to high gear ... trading currencies, equities, commodities and debt securities in transactions timed in micro-seconds in the hope that some momentum can be created and some overshoot (direction is irrelevant) can develop. On top of it all, the financial media and the "Old Wall" clown show will act as if these numbers are accurate and should be used as a tool in determining the short-term future of monetary policy.

Do Honest Numbers Matter?

In election year or any year for that matter, of course. Some will tell us that only trend and data that portray a generally accurate condition matter in the determination of forward-looking policy or in casting ballots in November. As a baseball fan who still recognizes Hank Aaron and now Aaron Judge as the true MLB home run champs, I say, yes, honesty in the numbers matters greatly. If the models are flawed, surely the errors must be understood by now. If its the birth/death model or the seasonal adjustment or a combination of mistakes, fix it. This lack of trust in federal data is unacceptable.

Overnight

There appears to be a risk-off sentiment that has raced around the globe Thursday evening into Friday morning. Asian markets are in the red. European markets have opened lower. U.S. equity index futures are trading lower. The U.S. Dollar Index has dropped below the 101 level. This has put a bid under gold and silver, but still not bitcoin. Treasury yields have moved lower, as well, which means folks are buying Treasuries. This morning, I have seen the U.S. Two Year Note pay 3.72% and the U.S. Ten Year Note pay 3.70%. That's down four and five basis points respectively.

Quoting the 'Rev'

"Recently, it has been a market with limited opportunity, as there has been growing concern over whether the economy is slowing faster than many folks had hoped. The Goldilocks economic narrative is no longer providing a tailwind for the bulls, and the Fed rate cut is already so well anticipated that the big danger is a sell-the news reaction."

- James "Rev Shark" DePorre (in his Thursday night piece)

Warning One

On Thursday morning, the August ADP Employment Report for private sector job creation hit the tape in deeply disappointing fashion. ADP reported that the private sector created a seasonally adjusted 99,000 jobs in August, well below the consensus view that had been for about 140,000.

Furthermore, there was close to no job creation at all in the Midwest and negative job creation (also known as net jobs lost) across small businesses (under 50 employees) nationally. On top of that, July's ADP print for job creation was revised down to 111,000 from 122,000 so this report only reflects a net gain of 88,000 jobs.

Warning Two

The Institute for Supply Management published their August PMI for the service sector on Thursday. This sector remains much stronger than the manufacturing sector of the U.S. economy. While the U.S. has been mired in at least an "industrial recession" for close to two full years, the service sector has had to carry the football, in support of personal consumption.

The headline print crossed the tape at 51.5, up small from July, and still in expansionary territory. New Orders accelerated to a reading of 53.0 from 52.4. That's a positive. Employment was even expansionary (just barely), decelerating from 51.1 in July to 50.2. Remember, employment has been deep in the hole on the manufacturing side for five months.

There are two overt problems in the August services PMI. One, Order Backlog dropped from a moderate state of expansion (50.6) to a state of very deep contraction (43.7). How long until this impacts new orders? My guess? September. Two. Inflation is hot. Prices in the Services PMI were red hot in August, rising to 57.3 from 57. Remember that prices were hot across the manufacturing sector this month as well, rising to 54 from 52.9.

In short, this survey reflects conditions across the service sector, which is more than three quarters of the US economy that might have a thoughtful economist wondering why the central bank would cut rate at all, if indeed inflation is accelerating again. Of course, the answer is to support labor markets, as the Fed must rob Peter to pay Paul.

Warning Three

Any of you kids see the research note to clients released by Stifel Financial on Thursday? Some of the quotes taken from that note sounded quite ominous.

"Fed cuts are a red herring."

And how about this one? "We have our doubts about the currently widespread belief that Fed Cuts = Buy Stocks."

On the un-winding of the inverted 10-year / 2-year Treasury yield spread, Stifel added: "Economic slowdowns have always been preceded by bottoming 10Y-2Y 'bull steepening' yield curves. Bull steepening yield curves have historically led to the weakest stock markets."

Stifel is advising its clients to position themselves defensively.

Tonight's the Night ...

S&P Global, which rebalances its indexes quarterly, is scheduled to reset the S&P 500 once again on Sept. 20. In June, KKR & Co (KKR) , CrowdStrike Holdings (CRWD) and GoDaddy (GDDY) joined the index. The announcement concerning additions and deletions for the index is usually made two weeks ahead of the event, after the close. That's tonight, gang. We all know what happened to CRWD in July. Super Micro Computer (SMCI) was a March addition. That's a couple of picks that might have those at S&P Global shaking their heads. There probably is some pressure to get any moves announced tonight right.

Who has a chance for addition? Looking over the list of who's eligible and not already in the S&P 500, such names as Dell Technologies (DELL) , my favorite... Palantir Technologies (PLTR) , Workday (WDAY) and The Trade Desk (TTD) all have legitimate shots at inclusion. Other eligible names I see as less likely would be Datadog (DDOG) , Snowflake (SNOW) and DoorDash (DASH). I would think Apollo Global Management (APO) is also a legitimate contender. Almost forgot about them.

Check Out The Diary Today...

For those who've made it this far, I will be the backup quarterback today over at the Doug Kass Diary right here at TheStreet PRO. Join us. Stocks, Economics, and maybe even Sports. All a kid could ask for on an early September Friday.

August Employment Situation (08:30 a.m. ET)

Non-Farm Payrolls: Expecting 163K, Last 114K.

Unemployment Rate: Expecting 4.2%, Last 4.3%.

Underemployment Rate: Expecting 7.8%, Last 7.8%.

Participation Rate: Expecting 62.6%, Last 62.7%.

Average Hourly Earnings: Expecting 3.7% y/y, Last 3.6% y/y.

Average Weekly Hours: Expecting 34.3, last 34.2 hours.

Other Economics (All Times Eastern)

1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 583.

1:00 - Baker Hughes Oil Rig Count (Weekly): Last 483.

The Fed (All Times Eastern)

08:45 a.m. - Speaker: New York Fed Pres. John Williams.

11:00 - Speaker: Reserve Board Gov. Christopher Waller.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: ABM (.85), BRE (1.11)

At the time of publication, Guilfoyle was long CRWD, PLTR equity.