Let’s cut right to the chase. If you haven’t heard of the Sahm Rule Recession Indicator before now, you will certainly hear about it today and this weekend. It argues (and it has a good historical track record) that when the 3-month moving average of the unemployment rate moves 0.5% higher than the lowest 3-month average in the past 12 months – we are headed for a recession. The current 3-month average is 4.13%. Last August it was 3.63% – a move of 0.5% (though to be honest, I’m not sure that counts, since it includes June data which was 13 months ago, but it isn’t really a rule either, so it seems close enough).

The unemployment rate ticked up primarily due to a larger workforce, with a larger participation rate. The Household data, which has been weak of late, added 67k jobs (only slightly worse than the Establishment’s 114k). More interesting was that it showed a substantial number of full-time jobs gained, with part-time jobs lost, which is the opposite of what it has been showing for much of the last year.

Revisions were down (that has been the trend). The private sector only added 97k jobs, a big chunk of the miss on the headline. I like to focus on private sector jobs as I tend to believe that this data is more indicative of the economy’s “natural” ability to generate jobs, while government employment tends to have many other factors at work.

Earnings dropped (which a few months ago would have been cheered as less inflationary, but now might point to belt tightening) and hours worked dropped – not great for the “no” or “soft” landing crowd.

The Birth/Death adjustment added 246k jobs.

I have no problem with attempting to fill in data gaps using estimates. I am sure that it is incredibly difficult to figure out how many companies closed or opened for business. Then trying to figure out how many jobs came or went must be statistically challenging (seems like a job for AI). What I don’t like is when we report 97k jobs, but 246k jobs come from this model. Basically, without the adjustment, we lost 149k private sector jobs. Maybe in a slowing economy, where jobs are being lost elsewhere, people are rushing to start businesses to capture the opportunity? Or maybe people who are getting laid off, or are worried about their jobs, are grabbing EIN numbers (tax IDs) for their “gig” economy jobs? Yesterday’s 249k of initial jobless claims was the highest this year, and continuing claims (which I think is more important) hit their highest levels since the end of 2021.

If the Fed only followed the T-Report’s advice in Building the Case for Rate Cuts and Know When to Fold ‘Em, we might not be in the predicament that we currently find ourselves in. Less than 48 hours after the FOMC meeting, statement, and Powell’s press conference, where they put September on the table (but hedged around it), we are now pricing in 1.7 cuts at the September meeting.

My biggest fear has been that we get a deteriorating economy that the Fed, largely due to lingering inflation fears, doesn’t respond to quickly enough.

We may well be there and would take duration off the table at these levels as the market seems to be getting way ahead of itself in terms of what the Fed will do. As we believe (or at least I talk about quite frequently), it is always about the concern that the Fed WILL NOT do what they SHOULD do.

With the recent sell-off in stocks, it is tempting to add some risk and play for a possible bounce, but I still don’t think that we’ve seen the lows that we will see in this recent leg down that started on July 10^th for the Nasdaq 100. We are nearing the 100-day moving average (decent support), but my target is for the 200 DMA which is 17,627 on the Nasdaq 100, just above where we bounced to back in mid-April.

I am shocked that the 10-year moved to 3.85% already! It was 4.28% just last Thursday! What a move!

While we’ve been talking about the shift from “no” or “soft” landing to a “bumpy” landing, it happened in world record time!

August is likely to continue to keep us on our toes and disrupt our summer plans!

DISCLAIMER