Something Really Weird Just Happened With This Jobs Data

We have transitioned from the world worrying about economic data being good enough to economic data not being bad enough. That's true about the GDP numbers which came in this month, negative as they were, but everybody's saying it wasn't more negative or it wasn't the right kind of negative. Same for the payroll report for the month of April which just came out. While $177,000 sounds initially like it's a good number too, it's another one of those, because by any rational analysis, just in isolation, April's $177,000. That's not a good number by any means and that's even before getting to the realization that it's very likely to be even less than that once we get through the revision process which is coming up ahead. I don't think many people realize that January and February payrolls are already down around $100,000 which means this year started out poorly which is more consistent with the GDP figures. Now we look at the last couple months, March's number which was above $200,000 has since been revised to just $180,000 which means a whopping reduction just in March. If you apply that to April, what do you get? You would get three of the first four months of 2025 down around $100,000, not up around $200,000. For most people, it doesn't look like it's confirming recession, therefore $177,000 is something to be celebrated as strong and solid in the face of all of these economic headwinds, tariff uncertainty, and everything else that's been going on. Again, dispassionate, honest economic analysis. You look at $177,000 in this context. What that says is the economy is indeed still in the same danger zone and that's even before we get to all the rest of the details as well as all the rest of the data that we have to go over which is quite considerable, especially in the context of what GDP did, setting aside the import artificiality or actually recognizing the import artificiality which means that there is a payback up ahead. I know, Steve, this is one of the points that you wanted to make and emphasize. We haven't even got to the worst of this. We haven't even got to the worst of the payback. We haven't got to the worst of the tariff shock. We still had a bunch of artificial positives from the front running of the tariffs to begin with and all we got is $177,000 in April. That doesn't seem like a good place to start. No, Jeff, it doesn't because we go back to late last year and what do we see? There was a big surge of hiring as the thought of tariffs were coming along and then as you said, it dropped down and then there was all of a sudden, you're at the five-yard line, you've got the running back, everybody's stacked up and you're doing a just huge goal line push because you've got to get all this production done in a very short period of time or you're at risk of getting hit with tariffs and yet, all we got was 177,000 jobs and to me, I was expecting it needed to be a blowout, a massive number because if it was, it would tell us that the US economy, the labor market isn't facing R the recession but it's facing R as resilient. This to me, it gives me absolutely no confidence because you said, if we apply the same amount of jobs that are going to get written down next month, then this number is somewhere in the low 100,000s and if that printed today, I think we'd have a big different or fairly different reaction from the equity markets than we're having. So yeah, I step back from this and I get people saying, well, it could have been worse. Well, we're not even there yet. We haven't even really even seen what the tariffs are going to do to payrolls. We can look at the soft survey, we can see there's a massive discrepancy between the hard data and the soft data and we know at some point, the hard data is going to catch down because there's nothing that we're seeing in the data or the surveys or from any of these companies that's going to indicate that there's a massive amount of hiring on the horizon. Yeah, I think that's the disconnect as far as the soft data and the hard data, right? It's timing. A soft data is sort of like people, you know, we talk about consumer confidence all the time and consumer confidence numbers, as we've been saying, have absolutely plunged and while those are perceptions related to jobs and incomes, that doesn't necessarily mean that jobs are being cut today. In fact, we're still early in the process and most employers are thinking, let's see if this, let's see if we can ride this thing out. Let's see if it does actually get bad. So while what consumers are saying is that we hear all these noises from our bosses and from management saying, if things go in the wrong direction, we've got our lists, as you pointed out last week, we've got our lists ready to go of who we're going to fire and who we're going to get rid of. But they haven't pulled the trigger yet because they haven't been, they haven't had to face that kind of short-run reality. So everybody's kind of sitting back and waiting and part of that sitting back and waiting is they're not hiring anybody either and that's what the jobs report actually reflects. When you put it in context, 177,000, it really says, and remember, this is overstated, not just the revisions. Even after it's revised, it's overstated. So 177,000, even looking at that as a face value, what that says is there isn't a whole lot of hiring going on either because everybody's just sitting on their hands and seeing where this will go. But the soft sentiment sort of is a tiebreaker. The sentiment surveys are saying we are thinking it's going to go in this direction. So we're getting ourselves ready to go in case that it does, in the very likely case that it does. And that's what consumers are picking up on. Not that they're being laid off today or tomorrow, but that they know that their employers and businesses, the businesses are already squeezed to begin with, that when these things, when these dominoes start to fall one after another, because nobody's hiring to begin with, it just means that once they do get let go, that means they have no place else to go. Yeah, Jeff, because when you look at the surveys and what business owners are saying, their biggest issue is we can't find the talent, the skill set that we want. So if you think about it, go after the, or during the pandemic, what happened? They laid a bunch of people off and those people went into retirement. Those were their highly skilled, long-time employees. And right now employers really don't want to go through that situation again. So what is their response? We saw this in the jolt survey, which I know is lagged and well, not overly accurate, we'll say very nicely, but nevertheless, what did it show? A decline in job openings. And then what were these response by employers to this kind of goal line push to get all this production done? It wasn't hiring. As you said, it was, hey, you know what? We're going to increase the hours of our existing workforce because we know they want it at the same time. And this is really, if you think about red flags and payroll reports, it said that the average hourly earnings, well, it was up 0.2%, but the year over year trend continues to decelerate because employers realize I don't need to give you a big race. I just need to give you a little bit more hours because I've got them. And then when all of a sudden the work dries up, which is exactly what the concern we're seeing from a lot of workers, they know new orders, they're not there. They know they're getting pushed onto backlogs now at 31 months, according to the ISM. At some point, those backlogs run out, Jeff, and I don't know how much money these businesses have, but I don't know a lot of businesses that can afford to have full-time employees standing around doing nothing for too long. So I think the next shoe to drop, what I'm looking for is hours worth to get slashed. And then we'll see, of course, maybe in a month or so, if things don't turn around, if the trade war doesn't end, then we're going to see a lot of jobs go. Yeah, there's a process here, right? I mean, that's what we keep talking about. It's a process and the process has been unusual to begin with during this cycle. As you said, during the pandemic period, the lockdowns, businesses started to think, okay, what happens if I can't get skilled workers anymore? So they've been holding that back this entire time and every business cycle in existence of the modern industrial economy, employers will hoard workers. That's what they do. They don't want to get rid of their workers and only do so under extreme circumstances. And this cycle more than any other, they're going to hoard their workers for as long as they possibly can. For one thing, they never hired many back. The jobs market is still millions short of where it needs to be for recovery. And that's simply that employers were saying, we don't see the business returning. We see prices go way up, but we don't see the business returning. So they didn't even hire as many as they needed to, to begin with. So they don't really have as many excess workers to fire. And that just means after running lean operations, they're going to wait till the absolute last possible minute before they pull the trigger on layoffs, because they do not want to let go of any workers unless they absolutely have to. And that's what's so striking about the soft surveys. The soft surveys are saying for the first time in this cycle, consumers are saying, we hear that this is the exceptional circumstances that we've all been fearing. This is the point at which our employers are saying, we really don't want to hire you. We'll take the profit hit for as long as we can, but we can't take it forever. And this is the part where it gets to forever. So the soft data is saying, and the hard data is indeed backing it up, that the conditions in the labor market are just like what they sound. The process is, as Steve laid out, so we got a little bit of an uptick in the economy at the end of the year, consistent with tariff billing and front running and everything else. Got a little bit of an increase in hiring, but mostly it was ours because businesses were not confident enough to bring on new employees, which they would have in January and February. Instead, the payroll numbers were terrible in January and February. And then you get a little bit better of a payroll report in March and April, but those are written down. But you do have a little bit of an uptick in hours. So if everything continues to move in the direction of tariffs and downturn and everything that the soft survey says, then those hours start to be cut back first before we get to the layoffs, which means the layoffs are still down the road a little bit. And American workers are saying, we see down the road and that's what we're seeing is that part of the process. Yeah, Jeff, because you're right. Employers do want to keep a hold of workers. They absolutely want to keep a hold of them as long as possible, because right now there's this big belief that these tariffs came out of nowhere. I mean, we knew they were coming, but they went up very quickly. They're going to go down very quickly. When they do, it's business back to normal. Everything's just going to just resume just like it was. But you said something very clearly. You've been making this case week after week. There's going to be a payback period. And not one, but we've got two. We've got the pandemic and now we've got the front running the tariffs. And you can almost see it's kind of like a conveyor belt. It's just getting closer and closer and closer. And that's what I think we're seeing. The soft survey data is indicating like, look, you know, the hard data is kind of saying there's optimism. Maybe things aren't that bad. And the soft data is saying, no, there's a giant hole coming. And that's what workers are responding to. They really just don't see that anything's going to change. And it makes sense because everyone's gone out and bought vehicles and whatever they could before the tariffs. So what happens at some point after that? You know, Harley-Davidson released earnings and they noted that their North American sales dropped 24 percent, which is staggering, Jeff. And so if you think about, you know, let's move this up the supply chain. If I have a dealership and I'm selling, you know, 24 percent fewer motorcycles, well, that means my inventory is not moving. Well, that means there's inventory coming down the pipeline that's already been ordered. At some point, it gets to the manufacturer at the factory and somebody says, we don't need to build anymore because we're not selling or we need to turn our production dial way back. And now we've got workers and we can afford, as you said, we're going to keep them for a little while and hope something turns around. But what if it doesn't? And that's what I think is the fear here and what the reality of what's coming is not reflected in the payroll reports. But it wouldn't be because it's simply April's payroll. Yeah, that's that's you mentioned the ISM earlier, too. That's another one that came out this week that everyone interpreted it. Well, that's not bad enough. That doesn't look like a recession. But again, it's early in the process of the payback period. What the ISM actually did show was that it was bad enough in that process. What it said was that we got the artificial high for the ISM. It had two months above 50 in January and February, which people's OK, a manufacturing renaissance. Things are turning around in the sector. That's got to be a good sign. And instead, what the ISM, as well as all the hard debt, including factory orders, which came in today, came in today, too. All of it says that there was the artificial high. It was indeed artificial and that we are starting to see not the payback period itself, but only the first stages of it. So the ISM was down to under 49, which in and of itself is not good. But while some people say, well, that's not bad enough, what it does confirm is that the payment process is beginning. It's beginning to form. And more importantly, we're also seeing a tariff impact, too, because new export orders absolutely plunge. And it wasn't just the ISM, also J.P. Morgan's global PMI for the manufacturing sector. That one did the same thing. It fell under 50 for the first time since last year because it got the artificial high, as you would expect, all the tariff front running. And now it also confirms the short run payback period. But it wasn't down around 30 or something like that. It doesn't look like a recession, what most people have in their mind as a recession. It was under 50 because the payback period is still just getting underway. That's really the message from both of those. While everybody can look at it and say, well, it's not bad enough, it actually is because when you put it in the context, what it says, what it confirms is exactly what we're saying, that there is a payback process underway here. Yeah, Jeff, and we can absolutely see it. You've noted there's one thing I think we should add to this is the production subcomponent went from 48.3 down to 44. Now, a lot of people would say, well, that's not a big change. No, it's a huge change. And this is April. Keep in mind, this is a massive change because what it's saying is an air pocket just formed underneath the manufacturing sector. And if it's 44 in April, where's it going to be by the time we get to the May data? And this is important because I think a lot of people don't realize if you've never worked in a factory, there's something called the utilization rate. And you're very familiar with this, Jeff, but it's about what percentage of a factory is being utilized for production. And the more factories being used, what happens, you get inflation, you get more hours, you get pay raises, because as you get closer to 100%, which you never get to, your costs go up, but also your demand for labor go up, but it goes in the other direction. So if you see production dropping to 44, which is a solid contractionary print, what it's already telling you is what the soft data has been telling us is, yes, we see the air pocket. It's forming here. Workers are noting, hey, we're not as busy. And at some point, what starts to happen here is capacity utilization of factory drops. You don't necessarily lay people off as we've been talking about. What you do is you start cutting their hours. And the problem, as you pointed out, Jeff, is prices are going up. We see that in all the survey data and the expectation prices are going to go up even more. So why we see this 177,000 print in the nonfarm pay report is meaningless, because what workers realize right now is my paycheck in the future months are shrinking, provided I have one, but prices are going up. So I'm going to be spending less. And then you start looking at McDonald's, Chipotle, Wendy's, Harley Davidson, all this discretion, the airlines, what are they all saying? People don't have the money. Yeah, I think it's not just soft data either. Like I just mentioned, factory orders data, even though it's only through March, factory orders excluding the transportation industries, which has really been Boeing and aircraft. When you get rid of those, when you set those aside, factory orders contracted in March for the first time since last summer. So there's another one in terms of hard data that validates what we're saying here. But it wasn't this monstrous 20 percentage point contraction. It was just a modest contraction, but the first one in the series since last summertime, which suggests the initial payback period, which began in March is still getting underway here in April, is going to ramp up in terms of more negative moving forward. Steve, I do want to get your opinion here on a couple of things. I know you always follow very closely related to what we're talking about in the labor market. That's jobless claims. There was a rise in initial jobless claims above 240,000 in the latest weekly data. I mean, we've seen jobless claims go up before. So I mean, that's one to keep an eye on. But also continued claims. Continued claims actually soared pretty high. It was at 1.92 million thereabouts, which was the highest since 2021. And while that one's been back and forth, you still see the trend moving up over the period of the last couple of months too. So we've got continued claims and jobless claims that are coming in a little bit uncomfortably high too. Yeah. And that's all that's doing is just kind of validating the soft survey data because Jeff, my concern is it's people on continued claims because the longer they're on, there is a very good indication that the economy is not creating jobs, which exactly what we saw in the NARF farm pay report. You know, like you said in the beginning, Hey, 177,000 sounds great, but it's really not that great when you put it into context of where we should be. And that's what continued claims is telling us. But the red flag for me is a longer people are on unemployment. Their spending continues to go down because at some point they've drained down their savings. And now the reality sets in is I'm not going to get work. So I've got to get by on whatever social assistance I'm getting. And as they cut back discretionary spending as well, and that persists, it affects other people's work. And that's why when you chart the two, you tend to see continued claims leading initial claims. And that's a red flag. The initial increase above 240,000, is that really a big deal? Not to me. Now, if that number continues to ramp up to 60 to 80, 300 in the weeks to come. Yeah. It's a strong indicator that the economy's falling apart. I don't think that happens just yet. I think employers are going to try to hold out for maybe another month, but there's going to be a point where there just is no work, no backlogs happens. No voice. Yeah. We also saw that in consumer spending too, right? Even though the labor market is weak as it is, consumers actually did the same thing that businesses did. They went out and bought a ton of stuff, especially in the month of March. We had retail sales that were down big in January. They didn't really come back in February. And all of a sudden there was this surge in March of spending. That was also in the GDP figures for the quarter as well. In fact, one of the reasons why consumer spending in GDP didn't fall off even more was because of this March surge, which means that we're also up here in terms of consumer spending heading in April, which again points to the fact that we are very early in this payback process, not well within it. And so it gets back to the original theme here, looking at the payroll report at 177,000, which is for some people, they're looking at that and thinking, why isn't it minus 177,000? And then because it isn't minus 177,000, therefore everything must be just fine. What it actually says at 177,000, as Steve just pointed out, why wasn't it 277 or 377 or something like that? And the fact that it wasn't points to the fact that there is a process here. The process is being confirmed and that process is confirmed with the labor data. And that process is pointing toward recessionary conditions over the weeks and months ahead.