Weekly Commentary

Me: During September, job growth slowed down to 263,000 new positions.  Not only was this below expectations, but it was also down from 315,000 last month, and year to date, we are averaging 420,000 new jobs per month, compared with 562,000 on average each month in 2021.  Is this telling us that the employment party is over and a harbinger of a recession is just around the corner?

Economic Guru:  While there is no denying this represents a slowdown, it is hardly what could be viewed as a collapse in the job market.  It is estimated that to just hold employment numbers steady, we need to generate around 145,000 jobs per month, and we have only dipped below that number three times since October 2019, and two of them were at the height of the covid panic.  On top of that, 2021 has to be viewed as an outlier, as we were rapidly replacing jobs that we lost during the pandemic.  In the past 80-years, there have only been three years we have witnessed such phenomenal jobs growth, and two of those were following major dips in the years prior, 1984 and 1978, and the largest in 1941 can be attributed to the buildup for our entry into the second World War.

Me: But what about the weekly initial filings for unemployment claims as well as the Job Openings and Labor Turnover Survey, JOLTS, that were released earlier this week?  Initial claims jumped 29,000 for the week, reaching the highest number posted since late August, and the JOLTS survey reported that the number of job openings decreased by 1.1 million in August, which was the largest monthly decline since March 2020.  Should this not begin setting off alarm bells?

Economic Guru: Seeing more people file for unemployment and fewer jobs available should never be dismissed offhandedly, but we do need to keep all of this in perspective.  219,000 initial claims, which this most recent number came in at, is pretty standard in the modern era, and in fact, if we looked back to the same week in 2019, several months prior to the onset of the pandemic, there were 224,000 initial claims filed during the week.  Concerning the JOLTS figures, there is no denying a drop of 1.1 million job openings is nothing to sneeze at, but you need to keep in mind where we have come from and where the actual number stands.  This number reached a peak of 11.855 million openings in March of this year, and even at the current 10.1 million available jobs, we are still 33% larger than the previous high-water mark that was set back in November 2018.  Yes, there is a possible negative trend worth keeping an eye on here, but because of the sheer size of the figures, I am not so sure it is panic worthy just yet.

Me: Well, I guess it all makes sense then that the unemployment rate slipped backward by 2/10% last month to 3.5%, matching the lowest point it had reached pre-pandemic, which itself was the lowest number recorded since December 1969.  This must mean that everyone who was worried that the Sahm Rule Recession Indicator, which I wrote about last week, can take a deep as it does not suggest we have moved any closer to a recession.

Economic Guru: That was a step in the right direction for the Sahm Indicator, but maybe we should not grow overly complacent when it comes to the unemployment situation.  The Labor Force Participation Rate slipped a touch backward as well, and at 62.3 is still statistically well below the roughly 63 level it remained at throughout much of the last decade, let alone the peak of 67.3 reached back at the turn of the century.  While I do not believe it would ever extend back to the levels recorded in the late 1990s, it is by no means inconceivable that we could see more individuals begin returning to the workforce in the months ahead.  Not by choice but rather by necessity.  As the cost of living continues to escalate, more and more families may become dependent on two incomes once again, and it is easy to see how retirees who once thought they had tucked enough of a nest egg away may be having second thoughts while they have felt higher inflation taking a bite out of their budgets and the swoon in the equity markets taking away the assets they plan to draw from.  Sure, we have seen some signs that inflation may have peaked, but that does not mean it will move dramatically lower in the immediate future, and some items, such as rents, remain seemingly out of control.

Me: Well, thank you, Economic Guru, for clarifying all of this, I think.  It seems nearly as clear as mud right now, particularly against the backdown of the action in the financial markets.  Things that you would think are bullish bring about bearish responses and those that seem bearish produce rallies.

Economic Guru: We are moving through several changes in this country, and indeed the world right now, that a number of people have never experienced.  To think, anyone under the age of, say, 35 has never really had to deal with inflation or rising interest rates, and for more than a decade, no one has experienced anything more than a brief swoon in equity prices before resuming the trek to higher highs.  Understandably, the post-pandemic world has generated a significant amount of uncertainty, and often uncertainty fosters a risk-off mentality in markets.  As such, it becomes all the more essential to take a step back, observe things from a macro instead of a micro perspective, and avoid becoming too embroiled in all the day-to-day noise.  Keep in mind as well one of the critical pieces of advice uttered by the Oracle of Omaha. “We simply attempt to be fearful when others are greedy and greedy when others are fearful.”  You tell me, are the masses acting greedy or fearful at this time?

Me: That is genuinely sage advice we should all keep in mind.  Well, at least one of the other billionaires in this country is trying to be reasonable and backed away from his foolhardy offer to buy Twitter at a ridiculous premium. Maybe we should be more like him.

Economic Guru: Well,…you might want to think about that last comment a bit longer and read the business sector from this week just a little closer.