With the government now back open, official economic data releases are coming in fast and furious.
And the data we’re seeing is a little … puzzling, to say the least…
On the one hand, employment appears to be strong, and inflation appears to be coming down.
But on the other hand, investors have become so eager to see a rate cut that we’re in “good news is bad news” territory, with a corresponding pullback in some of the market’s top tech stocks.
Today, we’re going to zero in on what you have to look forward to ahead of next week’s Black Friday retail rush.
Let’s dive in:
Video transcript:
Hello everyone. Welcome to Moneyball Economics!
I’m Andrew Zatlin, and it is a sunny day in Charlotte … but it’s not so sunny for the markets.
The markets have been drifting down again, and that’s because we’re finally getting economic data. The markets don’t like what they’re seeing. We are firmly in a “good news is bad news, bad news is good news territory,” and the data is starting off a lot more bullish than bearish.
And remember, this all has to do with the decision in December by the Federal Reserve. Will they make a rate cut or not?
And as the data emerges, the market’s going to digest it. They’re going to overreact because we’re not getting a consistent signal per se. There isn’t enough economic data yet. We’re kind of on a drip feed, which means every day we’re going to get a new piece of data. Every day, the market’s going to react.
A lot of volatility, maybe time to play the VIX. I do see a bottoming though, because at this point in time, things are starting to get a little cheap. The market’s drifting down already regardless of what’s going on with the economic data, and that’s because we have a retail versus investor thing going on.
Investors started basically locking in their profits back in the September timeframe. It’s bonus season coming up. They don’t want to risk their bonuses, so a lot of institutional investors started sitting on the sidelines, but not retail investors.
AI is going up. They started doubling down. And so when the rug got pulled out the past few weeks in the AI bubble, well guess what? A lot of people got caught out. They have to close their positions. A lot of forced selling, and again, institutional investors aren’t jumping in to save them at some point.
Again, we’re going to see things are just by the dip type of situation, and certainly if we get a rate cut in December. Wow, talk about the huge lurch up that’s going to be.
Will we get that rate cut? Well, if you ask me, I think it’s really a coin toss at this point.
The Fed needs to see inflation data and they need to see labor data. Right now, there is no inflation data, but I suspect inflation’s drifting downwards. It’s on a downward trajectory. Oil prices, major driver of inflation, they’re going down tariffs, they’re not really driving up much inflation, so I think inflation going down, well, that’s a thumbs up for a rate cut.
It means we can do a rate cut if we choose to. The problem is in the labor market, the latest data, jobless claims and payrolls points to bullishness, and that’s the problem.
If you’re looking for a rate cut, we got jobless claims data. Let’s start there. That was pretty much pointing to a strong labor market came out 222,000. In fact, ever since the shutdown started back in early October until now, claims haven’t really soared that high. Nothing above what we would expect for just a pure shutdown.
As a result, there’s not really anything you could say, but the numbers are benign. Even when you look at continuing claims, which is the accumulation of people who don’t have a job and haven’t had a job for over two weeks. They spiked 50,000 in the past six weeks, but again, that 50,000 spike is almost exclusively due to the shutdown, which means it will reverse over the next three weeks. We’ll get a couple more weeks of this jobless claims data, and the odds are it’s going to continue to show affirming up of the labor market.
Now, let’s talk payrolls.
Payrolls came out, and this was bullish. Payrolls came out, 119,000, not too hot, but certainly not as cold as a DP said it would be. A DP had a number out there, I believe it was minus 22,000. Well, it came out 119,000. A DP is an interesting case because when everything went dark with economic data, the Fed raised their hand and said, maybe we’re going to look at ADP data instead.
And so there was this huge shift. What’s going on with ADP? Should we take them seriously? Historically, no one’s really looked at the ADP numbers and guess what? ADP again is not looking reliable. They went negative at a time when there was a huge number, 119,000.
And you know who was the closest? Yeah, you’re looking at him. I came out with my forecast of 109,000, basically just one kiss away. I was number one on Bloomberg. Out of all the economic forecasters.
119,000. Well, it’s not that strong. There was a one-off there that boosted it, but it’s around a hundred thousand. It’s triple digits, and we haven’t seen triple digits in quite some time.
Remember all summer long, payrolls were barely above zero. We had a couple of negatives and we even had some numbers that were barely 20 ish. All of a sudden we get to July and we’re above 70,000. That reverses entirely in August minus three, but then we’re back again, 119,000.
So if you’re looking at trend, are things improving or not? You would look at the run rate and say, it really seems to be improving, but not there yet. What defines being there yet? Consistent months consecutively of over a hundred thousand. Alright, but the number we’re talking about is September, and we’re standing here almost in December.
That means we still have October and even November data coming out.
So September could be anchoring us high, but frankly, I don’t think so. Nevertheless, the market’s very nervous and they’re overreacting. Another reason why I think we’re not going to be going strong yet, I mean I think we are inflecting up, but not enough to work against a Fed decision. We’re inflecting up.
If you looked at the payroll data from September, what you would see is almost all job sectors. They’re circling the airport. They’re not hiring, they’re not really firing. Two sectors drove this number up. One was healthcare and one is basically going out and drinking and going out and eating people.
The consumers continue to spend, continue to keep the economy afloat, continue to pull jobs along, but almost all other sectors soft. I think that is slowly, slowly improving as we get into October and November, but there was a one-off, it boosted it to a hundred.
I think that’s kind of sort of where we’re going to be in October, November run rate wise, simply because October, we’ve got the shutdown. That’ll be a headwind of sorts, and then it’ll reverse in November, but I think we’re in that 75,000, a hundred thousand zone.
Again, just gut, and that’s a Goldilocks number. It means we’re not kissing a recession, which was the fear in the summertime when these jobs numbers were so horrible. But it’s also not hot indicating that the labor market has firmed up. Where that brings us is as we get more and more data, I think the signal is going to be consistently what I’ve been saying.
We are in a transitioning quarter where we are shifting from companies leaning back to leaning forward, and next quarter, starting January is when they’re going to pull the trigger, start spending and hiring. But remember, we’ve got a December rate cut.
The Fed pretty much has a coin toss. There’s no data that says they should, or at least no data yet that’s been released that says they should cut. Data’s starting to say there’s some firming up, but the data also says there’s room for a cut. So I think the Fed could cut, the Fed might not cut. It’s a 50/50 decision and this is driving the markets crazy. What is the Fed looking at and what is the data telling us?
Unfortunately, the data’s going to be too little too late for the Fed, and so it’s a guessing game. Play the volatility, and I’m going to be watching the economic data as it comes out and sharing with you how it tells us what’s going to happen and how we can play it.
In the meantime, remember we’re in it to win it.
Zatlin out.
Andrew Zatlin
Editor, Moneyball Economics