Over the last few months, I’ve been warning that the job market is out of whack — and that all the disinformation going around was bound to have consequences someday down the line.
Well, that day has come.
The latest job market report is terrible. So bad that the Federal Reserve may soon be rushing to cut rates not by 25 basis points, but by twice or even three times that much.
But as you’re about to see, the situation is even worse than it looks.
Click the video below for the full story:
Video transcript:
Good morning fellow Moneyball economists.
It’s Friday, it’s payroll day, and guess what? It’s terrible for payrolls, but it is fantastic for anybody hoping for a rate cut.
The markets are going to get their wish. We’re going to get a rate cut in a couple of weeks, but it could even be higher than expectations. It could be 50 basis points and possibly 75 basis points. Let’s talk about what would compel the fed to go super deep by looking at the numbers…
So payrolls came out first and foremost.
June data revised down again. That’s right. June data came out initially a couple months ago at 147,000 jobs added. It was revised down last month. It was revised down again today to -3000 jobs. So today’s data came out. Payrolls for August 20th — 2000. That is four months in a row of incredibly weak payrolls added up, not even 200,000 jobs created in four months.
Donald Trump is probably going apoplectic right now because all the soft survey data that’s been coming out more recently that talks pretty much about what’s going to happen in September, points to another travesty in September. So that will be five months in a row on President Trump’s watch where he has really bad economic data.
And remember, this is also very recessionary.
You do not have levels of this employment without having a recession on the way or underway. So we’ll see what happens.
As for the rest of the data, so we’ve got 22,000 jobs created. Not very exciting, but let’s face it, it’s consistent with what we’ve been talking about that companies aren’t incented to hire. The big picture here is corporate profit growth year over year. It was super strong last year. It was in the double digits, but this year corporations on a year over year basis are barely growing mid-single digits, and that’s before we take into account inflation.
So in fact, companies really aren’t growing.
So they’ve been leaning in for a long time. Way before tariffs kicked in. They’ve been leaning into a cost management strategy for the year 2025. Cost management means that they are cutting back on travel and entertainment and things like that, which again has a downstream effect of companies that provide those services are now going to be cutting their workers and cutting their costs in order to get that profitability.
Even the mid-single digits companies are not just cutting costs. They’ve been obviously not hiring, keeping their costs under control by keeping their staffing under control and it’s working, but it’s not getting them back double digits. They’re not likely to change that trajectory anytime soon.
There’s also a more practical reason. Not just they want to make their books look good, but fundamentally, if a lot of these companies are seeing revenue growth and profit growth primarily because they’re just raising prices, well then understand that the underlying foot traffic is the same.
Hilton hotels, for example, if they’ve got the same number of rooms being let out, if their vacancy rate is the same, they’ve got the same number of rooms being taken up as last year, then they’re going to need the same kind of support staff no more. They’re going to have the same number of people cleaning the rooms, the same number of bartenders serving drinks in the lounge and so on and so on and so on.
So practically speaking, not just bookkeeping, practically speaking, companies don’t need to hire. So you are now Chairman Powell, you see terrible four months in a row of really weak jobs and that’s one of your key mandates. Inflation hasn’t really been that hot, but you suspect it’s going to get a little hotter because of tariffs, but doesn’t matter. Four months in a row means we are nearing a recession.
If we’re not in a worsening climate, you’re going to cut rates, but you then look at the unemployment rate and it’s ticked up a little bit, not that much. 4.2% last month. Now it’s 4.3%. Is that enough to do 50 basis points?
Well, here’s the dark dirty secret that I uncovered.
In fact, unemployment is actually closer to 4.7, 4.9% for the month. Someone went in and fudged the numbers again. That’s right. Let me explain the mechanics of what happened. Government workers last month suddenly shot up 811,000.
That’s right. In one month the government hired almost a million people. To put this in perspective, this is the second highest one month jump in 55 years. Folks, this is not real. It did not happen, and it’s the second highest because the highest was during COVID. In fact, if we go back 10 years, if we go back 10 years and we ignore 2020, the year of COVID, take a look at this chart:
You see the distribution?
Hey, in any given month, government hiring swings up and down, say two, maybe even 300,000. Not that much, certainly not 800,000. There have been four occasions in the last 10 years where we’ve gone above that and as you can see, two of them were in 2022. Again, in a COVID type of influence period.
Bottom line, this is not just unusual, it’s fudged, it’s fake data.
If we took that 810,000 and we normalized it and we said, well, actually it’s probably closer to say 200,000. That would mean that the unemployment rate is actually 4.7%.
And here’s where I’m going —this happened last year, same time in the runup to the election. Suddenly over 1 million government jobs were discovered. I saw it, I pointed it out, and guess what? A few months later, fast forward, they were revised away as if they didn’t happen.
Same thing’s likely to happen right now, but here’s the key for the Fed. If they’re looking at the data, they’ve got terrible payrolls, unemployment getting soft. If they look harder at the data, they’re going to see terrible payrolls, unemployment surging. It’s the difference between a 25 basis point cut, a 50 basis point cut and a 75 basis point cut.
I believe that we’re going to see more and deeper rate cuts as the year goes on because quite frankly, companies aren’t hiring. The tariffs are taking their toll. As we go into next year, I think things are going to be great, but right now we’re going to get a magnificent rate cut. See what the fireworks are coming out of the White House this weekend.
But bottom line, you are looking at a huge opportunity. As we’ve said before, deeper rate cuts, fantastic for retail, fantastic for gold, and a whole bunch of other asset classes. Economy’s going to surge going into next year. Folks count on it. In the meantime, stay in it because you’re going to win it. Zatlin out.
Andrew Zatlin
Editor, Moneyball Economics