Buy the (Payroll) Dip…

These past few weeks, it seems like the market’s attention has increasingly turned towards escalating tensions in Iran and the backlash that’s creating in oil prices…

But you can expect an abrupt shift this Friday — when all eyes suddenly turn to the latest payroll numbers.

Will we see evidence of a strong economy … or a weak one?

This month’s payroll print is especially important because the last few have been all over the place. One month we’re growing, the next month it looks like things are slowing down. And so many investors are still locked in a “bad news is good news” mindset, where they want to see signs of an economic slowdown, since that will force the Fed to cut rates.

Except that’s not what they’re going to get.

Click the video below for the full story:

Video transcript

Welcome to Moneyball Economics. I’m your host, Andrew Zatlin.

The past couple of weeks, the markets have been very much focused on what’s going on in Iran and in particular oil prices, the inflationary effect, the economic blowback from that.

However, as the week progresses, the attention is going to shift to payrolls. Payrolls are coming out this Friday, Good Friday, and I think they’re going to turn Good Friday into a not so good Friday.

You see, the markets are expecting a relatively mild payroll number, and I think they’re going to be shocked. I think the number’s going to come out very strong, and they’re not going to like that for a number of reasons. One of which is they’re not prepared for strong number. But the other is that payroll strength this Friday will essentially be the final nail in the coffin for interest rate cuts.

The market wants interest rate cuts, and if they don’t get them, they have to reposition.

And as a result, I think they’re going to throw a tizzy on Friday.

I think the markets are going to come down a little bit.

I think it’s going to be a buy the dip opportunity, because let’s face it, the market’s already down 10%. It’s not going to go down that much more. This will push it down, and then it’ll creep back up.

But why do I think payrolls are going to be strong? They were super weak in February. And the question really comes down to, January was a strong month, 125K payrolls. February was a week month minus 92. Which one of these is trend? Consensus thinks February, the weakness is the trend.

And I’m here to tell you that no, that was the anomaly. That in fact, from here on out, we are seeing employers hire. I want to explain that to you today so that you get prepared for the madness that’s going to hit on Friday.

Let’s take a look at the numbers…

So in January, the numbers for payrolls came out pretty strong, about 125, 130,000. And then it reversed in February minus 92,000. And yet, is February a reversal of January or is March going to be the reversal of February’s weakness? Well, let’s dive into February. February minus 92. Of that, 31,000 were tied to a one-off hospital strike at Kaiser. So let’s take that minus 92 and tweak it up a little bit to minus 60, still a low number. And what would make minus 60 happen?

The answer, massive snowstorms in late January and into February, because that is when they do the payroll survey. What happens when snowstorms hit? Well, obviously people stay at home. There’s not a lot of outdoor activity. And as a result, there’s going to be some firing. There’s not going to be as much hiring.

But it also depends on which month it hits.

If you see snowstorms in December, well, we always know snowstorms hit in December, and so it’s going to have less of an impact.

But February, February is a key month because February is when we kick off the new year and the new economic cycle. And so as a result, we’re starting to hire. Well, not if we’ve got major snowstorms, we’re not. And that’s what happened.

See, we had some layoffs. Well, let’s face it, the pizza shops didn’t open and so people got laid off. But it was more tied to we didn’t see hiring in the sectors that are linked to weather being good and starting to grow. And let me be very clear on where we saw this drop in seasonal hiring. It started off with schools. Schools, there’s a lot of seasonal layoffs in December and January because they’re shutting down.

And so you let some of the people go. Teachers, they’re salaried, they don’t count. But you’ve got janitors, groundskeepers, cafeteria workers, a lot of bus drivers, a lot of people who are working who can be laid off for the three to four week holidays. And then they’re brought back in and more and more brought back in as February starts to progress, except this year.

Take a look at this chart and you will see an incredible drop in February’s hiring compared to where we’ve been historically. In fact, 50,000 fewer people were hired, seasonal workers in February for schools.

Those are your janitors, your groundskeepers. You don’t bring someone into work on the turf when it’s covered in snow. That means those 50,000 workers, they were delayed and they’re going to happen in March. And that is the theme. March is going to reverse that trend and not just education.

We also have construction.

You don’t go out and build when there’s mud and water and snow and so forth, but it doesn’t just stop there. We’ve got shipping. You have a lot of trucks that don’t drive on icy highways. Same with couriers. You have a lot of couriers who don’t get brought in and so on and so forth. Same with temp workers. Same with building services. Folks who are supposed to come out and exterminate, do whatever the janitors do, landscapers do, exterminators, things you don’t need when it’s snowy and rainy and muddy.

You add up all of this activity. And what you see is that 130,000 workers who were normally hired in February were not hired and all of them are linked to bad weather, which means we’re going to have 130,000 worker tailwind, plus 31,000 for the hospitals. So we are coming into March with a 160,000 worker tailwind.

And that, my friends, is super huge.

And in fact, to understand why this is so specific, why the February collapse was not general collapse because companies don’t want to hire, but was very specific to storm affected sectors.

Let’s go and take a look at, for example, something white collar workers. We keep hearing, oh, jobs are white collar workers, AI is crushing them. Okay. If I take a look at professional services, white collar workers effectively, and we take out the temp workers. A lot of stores are closed because of the snow and we take out building services. A lot of people weren’t hired to start doing that building facilities, landscaping work.

We take a look at that grouping. We find that, in fact, professional services hiring in February was stronger than last year, and in fact, is at 2024 levels. That is what I mean by we’re going to see a rebound this year economically.

It’s already happening in the numbers.

So when we come to March, the reason we’ve got this expectation of a strong number is big picture, the economy’s growing. It’s not leaps and bounds, but it’s growing. It is creating jobs.

And then we’ve got this 160,000 person tailwind boosting. This is going to be a phenomenal, phenomenal month, unless you’re in the markets and they hate seeing good news and good news is bad news. And I think that’s what’s going to happen on Friday. Look forward to connecting with you further.

We’re in it to win it.

Zatlin out.