One of the reasons why investing seems so gosh-darned hard is that there’s never any shortage of bad advice out there.
Take one of the latest reports from Goldman Sachs for instance.
Goldman’s a pillar of America’s financial system, yet they’re now predicting America has about a 1-in-3 or 1-in-4 chance of seeing a recession in 2026.
Recession?!
Are we even looking at the same data?
Hit the video below for the full story:
Video transcript:
Welcome to Moneyball Economics. I’m Andrew Zatlin. And if you’re wondering what’s going on in the economy today and you were to go to Wall Street, you would not get a consensus view.
You would not get a single view.
Instead, you might get the bearish view … Goldman Sachs came out and their expectation for this year, they’re forecasting that the odds of a recession are up as high as 25, 30% chance of a recession this year. But you also might get the exact opposite view. You might get the bullish view from a fund manager who believes that this economy is picking up steam.
And in fact, instead of rate cut chatter, we’re going to start to hear rate hike chatter at the end of the year. Well, to be honest, you’re not going to hear that from very many people on Wall Street, but you will hear that view from me — because I’m very bullish.
I believe that the data’s telling me that we are in the early stages of a new economic cycle. Things are growing. I call it the Trump cycle for obvious reasons, and that this view’s going to become the consensus view by year end.
Why am I bullish? Well, it all comes down to what I’m seeing in the hiring data. As you know, I track hiring at the individual company level, and then I aggregate it to get a general sense.
Are most of the companies stepping on the gas or stepping on the brakes? And the reason I do that is because there’s a direct relationship between today’s hiring and tomorrow’s revenues.
I want to share with you that thinking, and I want to share with you the data that says companies have started to hire again. And in particular, I want to focus on a subset of companies.
I want to focus on the companies that depend, that their business sinks or swims according to how much hiring is going on.
But right off the bat, let’s talk about what I just said, that today’s hiring is tomorrow’s revenues. That sounds a little bit opposite, right?
Because let’s face it, there’s the dog and there’s the tail. Companies hire if the business activity is there. So the business activity is driving hiring. And yeah, there’s a positive feedback loop there. More people hired, more spending going on, more business activity, and so on and so forth.
So that’s one reason that we want to look at jobs as being the outcome of what’s going on in business activity.
But the reason that you’ll see job growth come before the business activity is because companies need to get ahead of the opportunity.
They don’t want to wait for the opportunity to emerge and not have someone there to address it.
GM doesn’t want to say, “Gee, there’s a lot of people out there buying cars, but I didn’t ramp up my workforce in time to make the car to sell.”
Also, since the internet came about, companies are a lot closer to end users. We’ve removed a lot of the middlemen, so they’ve got better visibility to what the end user demand’s going to be. And there’s even another shift. A lot more companies have gone into what we call a subscription model where they get an annual subscription.
So they’ve got a view of the next 12 months of money flows and they can plan accordingly.
So again, it’s this idea that companies have better line of sight and early visibility to the business activity out there in the near term. And so they’re going to take action today. This is how it’s not so much a dog tail relationship as it is a leading indicator.
Hiring has become a leading indicator, even though it’s the outcome of the actual business activity. It’s the way it is.
So with that in mind, right now, in general, we’ve been seeing some rocky information if we go by the official conventional data. We had very weak jobs last year. Then we come to January, sudden emergence, big job growth and payrolls, and then it’s come down again in February. What’s going on here? Well, the answer is we’re transitioning.
And when you transition from one cycle to the other, you’re not going to get that consistent data pointing in a single direction. Sometimes up, sometimes it’s down.
And that’s the key to understanding hiring. Talk about a cycle, a business cycle. Company does really well. They’re growing, they’re hiring more, but then that growth slows down. It’s natural. Growth slows down. And as it slows down, the hiring demand slows.
But then we get to this really interesting part where we’re at the floor.
So when a company’s peaked and they’re no longer growing as much, that’s when they start thinking we need to get rid of workers and so on and so forth. But what happens when all that bleeding has stopped and the company has stabilized? That’s where things get interesting…
See, in general, like I just mentioned, hiring is a leading indicator for business activity. But when we’re at this bottom point, when there’s been a lot of bleeding, this is an interesting, unique exception.
This is when hiring is not a leading indicator. Let me walk you through that for a second. I’m a CFO. My company has gone through a couple of quarters of having to retrench. Business slowed down. I had too many workers. I had to get rid of them. I was not hiring. I was firing.
Okay, but now I’ve reached a certain stability, an equilibrium. When I start to see growth, when it starts to materialize, I’m still not going to hire. Because my people, my employees are scared to lose their jobs. I can squeeze them. I can squeeze them another quarter, even two quarters. I can get them to continue to do more work because thank God they still have a job.
But there’s going to come a point in time when I can’t get away with that. When in fact the growth opportunity is so big, I have to start hiring again. And so that’s why when you’re at the bottom, hiring actually is not a leading, it’s a lagging indicator.
But again, we come to this kind of event horizon wherein when you’ve been bottoming for a couple quarters, when you haven’t been hiring for a couple quarters and you start to hire again, that’s a strong sign that not only has business returned, but that the leadership at that company has decided there’s a lot of business and it’s consistently strong, it’s sustainable, and we do need to ramp up our hiring.
Well, guess what?
That’s what I’m seeing in the data, that we have already gotten through that bottoming part. We’ve stabilized and that we’re now in that early kind of green shoot stage where companies are leaning into hiring again. Not jumping in, but they’re leaning into it.
And that’s a sign that they’re seeing this year already business activity return and they’re expecting it to come in even faster. Well, that’s the general mechanics of things. Let’s now look at some specifics. There are companies out there that depend on a thriving workforce.
For example, you’ve got companies that are benefit companies like ADP or Paychex. They’re processing paychecks, or you’ve got Workday in that same zone. They handle a lot of HR and benefits management. Again, more people on staff, you’ve got to pay Workday more to help manage all their communications on benefits. Also, you’ve got people who are sitting at a computer.
They’re going to need some licenses to software. Then you’ve got people who are, for example, working at temp agencies. So as there’s business growth, you’re going to see more demand for temp agency workers and so on and so forth. So I would like to share with you some snapshots of some of these companies, and you’ll begin to understand how, while it’s not, again, a universal view.
Everywhere I look, the companies that make money when other companies are growing, well, they’re starting to show signs of growth themselves. Let’s start off with the benefit type of companies, the HR benefit companies like Workday, Paychex, and ADP. Now here there’s a little bit of variety. When I say that, what I mean is you’ve got a little mix here. We’ve got Workday and ADP. Best case, they flattened. They’re not quite ramping up, but then we’ve got Paychex.
Paychex handles about 20% of all paycheck processing, and they’re expanding the workforce.
Again, they’re expanding their workforce because basically their customers are expanding the workforce and they need more paychecks being written.
Let’s just talk about the IT tools…
You’re sitting at your desk, would love to be able to focus in on Microsoft because let’s face it, most companies use Microsoft licenses like Excel or Word to do their business, but Microsoft is such a big entity. We can’t just look at them. But where we can look are two companies. One is Salesforce.
Salesforce has become the de facto tool used by sales, finance, and other people in the operational world. So as you get more salespeople, more back office, operational type of workers, they’re going to need more Salesforce licenses. Another pure play from the software perspective is service now. And again, when I look at these, I see nothing but rising demand.
Let’s talk about staffing.
Let’s talk about companies that are staffing up because their customers are needing more temp workers. Companies like Accenture, Kelly Services, Manpower, Robert Half. All across the board, they have started to ramp up hiring. That’s an indication that companies are out there demanding more, especially temp workers.
And remember, a lot of the demand early on in a growth cycle, as we’re starting growth cycle, people have got to hire more part-time workers. They’re going to hire contractors. Again, we’re not sure that this economy is growing yet or it’s sustainable. So I want that. I’m a business. I need that flexibility. Then we’ve got companies in the healthcare space.
Again, as companies expand, they demand things. If you’ve got more workers, well, you now got to cover their healthcare. And so I took a look at companies like UnitedHealthcare and Cigna. They are some of the primary companies providing companies with healthcare support.
And I looked at MetLife.
The reason I looked at MetLife, well, because when people have jobs, they start spending their money on quote luxury items. And frankly, I believe that life insurance, which is dominated by MetLife, by the way, I believe that life insurance is a luxury. And so when you’ve got a job and you’ve got the option, for example, under your healthcare benefit package to get life insurance, yeah, why not? That’s when people sign up again.
All across the board, I’m seeing stability. And at most of these companies, I’m seeing some expanding demand. Again, not rocket up, but growing, steady growth, and not just for one month. It’s been happening pretty much since the end of last year. Well, now that you see the data, think about what it means for your investments.
If companies are expanding today, that means when we get to the first quarter earnings releases, they’re going to be pretty powerful because business growth without operational cost growth means we’re going to have expanding margins, and they’re probably also going to come out with pretty positive things to say about the next few quarters.
We have a buy the dip opportunity.
Whatever’s going on in Iran goes away. And meanwhile, we’ve got ongoing growth that is now early, early stages of a true growth cycle that’s going to last a couple of years. That’s my view, and that’s what the data says. Remember, folks, we’re in it to win it.
Zatlin out.
Andrew Zatlin
Editor, Moneyball Economics