Goldilocks And The 3 Bears Of “Layoffs, Unemployment Claims, And Payrolls”

What to Expect from NFP and the R-Word

Non Farm Payrolls (NFP) are released Friday morning. Markets have had the mighty tailwind of ever decreasing employment rates and strong job gains during this past long cycle post Great Financial Crisis.

Given all of the faltering, in some cases shocking, US and Global economic data signifying slowdown, NFP seems the last indicator of impenetrable strength that Wall Street and die-hard Bulls are hanging their hat on.

Problem is, we have had 9 months in a row of year over year increase in layoffs.

In short, Layoffs have been climbing but not yet “showing up” in NFP and employment rates. Having said that, we’re close. It’s the last great lagging indicator to turn before Recession fears truly appear.

Recessions “cause” unemployment rate to go up, not the other way around (the UR is a lagging indicator)…employment works like this: H/T Liz Sonders

  • Layoffs = leading leading indicator
  • Unemployment claims = leading indicator
  • Payrolls = coincident indicator
  • Unemployment rate = lagging indicator

The average span between unemployment rate-troughs and “recession starts” has been 6.4 months. However, the duration of the S&P 500 (SPY) peaking with trough unemployment is evident in my chart below. Not only are we close to turning, in 3 of the 5 last times when US unemployment was at the current level, the S&P 500 peaked within 10 months. Well, the current unemployment rate has been at or <3.9% for 12 months already.

We have a “Goldilocks” market that can quickly turn into the Three Bears of “Layoffs, Unemployment Claims and Payrolls” chasing her out of the house!

unemployment claims versus s&p 500 index equities chart - investing news june 7

What To Expect From Powell/Fed

U.S. INTEREST RATE TRADERS are now pricing in almost two full cuts in the fed funds target before the end of the year. Fed funds futures for Jan 2020 imply an expected rate of just 1.95% compared with current rate of 2.39% (and target of 2.25-2.50%). U.S. TREASURY YIELD CURVE is moving deeper into inverted territory — with 10-yr note rates now more than 19 basis points below 3-month bills. U.S. TREASURY YIELD CURVE inversion is anticipating highest likelihood of recession since 2007 (before 2008 downturn). Recession risk is now well above levels that preceded recessions in 2001 and 1990. So what can the Fed do to ward off economic slowdown AND a rate-cutting policy that might trigger a Recession?

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