Despair, dear friends. Despair.
US private sector employers added more jobs last month than any economist surveyed thought possible, underscoring a robust labor market, plentiful jobs and economic opportunity for the masses. It’s a disastrous state of affairs, which is why the good folks who trade the stocks will be righteously (if only temporarily) aggrieved.
I’m just joking. The muse “lived loudly in me” on Wednesday thanks, perhaps, to too much Major Dickasons.
ADP said private sector hiring was 239,000 in October (figure below), far ahead of consensus (185,000) and “better” than the highest estimate from 30 economists surveyed. The scare quotes around “better” are an allusion to the “good news is bad news” environment, in which additional evidence of labor market strength is unwelcome to the extent it points to more Fed tightening.
September’s solid print was revised slightly lower, but not enough to matter.
Hiring was overwhelmingly concentrated in tiny and mid-sized businesses. Those with 1-19 employees added 62,000 jobs (which, if they were all concentrated in the smallest businesses within that category, would mean 62,000 firms doubled their employee count!), and those with 50-249 employees 241,000. Every other category shed jobs.
Notably, manufacturing dropped 20,000 positions in October, ADP said. That squares with decelerating factory activity, although I’d note that ISM’s employment gauge moved back to 50 from contraction territory in the October vintage.
Services hiring was very mixed. Information, finance, business services and education & health all dropped employees, but 84,000 additions in trade and transportation, alongside 210,000 in leisure and hospitality, more than compensated.
ADP’s new “pay insights” showed the median YoY change in October pay was 7.7% for job stayers, and 15.2% for “changers.” Those are obviously elevated figures, but they’re actually off the highs. The peak for changers was 16.4% in June. The median for leisure and hospitality jobs was 11.2% last month. These numbers are difficult to reconcile with the Atlanta Fed’s wage tracker. I won’t try.
The data came on the heels of JOLTS figures which showed job openings increased in September, contrary to expectations for another monthly decline. Quits remained historically elevated, suggesting churn is pervasive. None of that is consistent with the Fed’s express goal of better balancing labor demand and supply.
“This is a really strong number given the maturity of the economic recovery but the hiring was not broad-based,” ADP’s chief economist, Nela Richardson, said Wednesday. “Goods producers, which are sensitive to interest rates, are pulling back, and job changers are commanding smaller pay gains. While we’re seeing early signs of Fed-driven demand destruction, it’s affecting only certain sectors of the labor market.”
I’d reiterate that this series is still too young to use as a guide for NFP. ADP revamped the report over the summer.
According to the “pay insights” page, the median annual pay for job stayers in October was $56,100. If the implication (and I’m not sure this is the implication, you’d have to ask ADP) is that the median annual income for two married “stayers” in America is $112,200, count me skeptical.
Imagine, someday, if Jerome Powell sticks to his plan, Americans could end up with a healthy economy and “real” interest rates….Nah.
Yeah, and see this what so many people don’t seem to understand. This isn’t supposed to be an all or nothing type of deal. The idea, in a healthy economy, is that people have jobs, stocks go up steadily (but not crazily) over time, dividends get paid, you buy bonds for yield not capital appreciation, money market funds are a real source of income and (gasp) people can eke out a positive inflation-adjusted return on their savings accounts.
Part of the struggle in getting back to that type of scenario is that no one believes it’s possible anymore, in part because no one remembers when such a conjuncture existed.
If rates eventually go back down to the multi-year lows, I will not expect to get a positive inflation-adjusted return on savings accounts. It may happen because the world and our lives and economy are changing slowly, in real-time, before our eyes. But who knows what will become of the markets going forward.
How it evolves remains to be seen. But our perspectives have been distorted: We really have been spoiled by success. The current levels of inflation give me pause, but it’s not in the least bit like the 70s. I can wait for the current state of affairs to resolve because I actually expect it eventually will. I also realize there are complicating factors in the world economy.
The dialing down of globalization will be a weight on the US economy, as will the very tepid state of China relations. To the extent the US moves away from China, production costs will rise. In the meantime, the Russian invasion of Ukraine, especially Russia’s nuclear surprises, can dampen expectations across the world. I do not sympathize with Russia’s self-destructive and delusional actions, but we have to be wary of Putin and the country. They’re going down, and it is an ongoing hazard.
To sum it up, with so many dangling questions, I’m not excited about the next 12 months. My small-cap tech stocks may experience some recovery, assuming the US turns the corner in regard to inflation. But if, in the US, we experience a recession, it may be a longer story. I invest for the long term and pick companies that have good plans, useful products, and strong balance sheets.
The Fed can only do so much. We need a functioning Congress to resolve some significant problems. It seems that the majority of Americans are in agreement (or at least the majority are not at polar ends of the spectrum as the press would have us believe) on most social and economic issues- but neither political party wants to acknowledge and build on that midpoint.
I am a long term fan of the Major. A few years ago, I discovered that there is a decaf version of the Major and also a half-caf blend of the Major – for when I start feeling too jumpy!
The absolute worst problem in my view is the democratic party’s absolute ineptitude in using rhetoric. Human beings are combative by nature and irrational. US history is replete with irrational actions and words by both parties. The illusion of democrats is their self-perception: They are somehow more advanced, cultured, educated. This is not true. If they were truly cultured and educated, they would be able to assert themselves successfully in the public discourse and persuade republican hearts and minds to vote for them, even in an off-year election. I like Joe Biden, but he’s woefully passive, as if his age and position guarantee everyone’s respect for him. But that is a sad illusion. Bernie was spot-on accurate when he noted this past week that democrats have ceded the House of Representatives through (utterly ineffective – my words) messaging. I loathe their ineptitude and inaction.
“Absolute worst”? Are you suggesting Democrats should start saying elections they lose are stolen? That would be pretty combative and irrational rhetoric.
I 100% agree with ChgoDave. Dems shouldn’t say elections they lose were stolen, but we are in a space and time where taking the “high road” is not only counterproductive to progressing an agenda, it is down right political suicide!
Dems can’t keep bringing rubber knives to a gun fight. Fight fire with fire at some point! Whether we like it or not the broader American politic respects/ supports strength, and all their high-falutin speeches and talk falls on the deaf ears of voters and Dems come off as though they are not up for a fight.
To that end, who in the Democratic party would you consider a “Fire Brand?” As I type that question, a Democratic Firebrand almost sounds like an oxymoron.
I’ll respectfully nominate Elizabeth Warren for Democratic Firebrand.
I agree with the request made of Democrats to turn up the heat in rhetoric and be more combative on their defense of, well, Democracy. Indeed that behavior polls well (Beto got higher approval ratings when he cursed at a heckler).
I’m warning against saying their feeble rhetoric is “the absolute worst problem”. A passive response to egregious behavior is never worse than the egregious behavior itself.