The canary fainted!

Non-farm payrolls increased by more than the market expected, but at the same time, the unemployment rate was likewise higher than expected, a rare occurrence in recent months, and after a rebound in August compared to July in 2022, it once again regained its low lift in October compared to September, while the total unemployed population exceeded 6 million.

Of course, there is no need to doubt that the current U.S. labor market remains hot.

In September, there were still 10.72 million open positions in the U.S. non-farm payrolls and more than 11.2 million unfilled positions in August, compared to 6.06 million unemployed people in the October survey, which means that there are 1.77 open positions for every 1 job seeker, if you don’t take into account the occupational match. This means that there are only 1.2 vacancies for every 1 job seeker, if you don’t take into account the job matching – before the outbreak of the new crown in 2020.

Meanwhile, the labor cost index is still up more than 5% year-over-year in 3Q2022 because companies are still short of people.

Some might say why did the unemployment rate still lift when the number of new nonfarm payrolls clearly exceeded market expectations? Does this not mean that the U.S. unemployment employment data is being falsified?

In fact, the two figures are not contradictory.

In fact, these two data are not contradictory, this problem, I in the “employment, to sweat it out” article in detail analysis.

The increase in the unemployment rate means that the number of people eligible for unemployment statistics and looking for work has increased, while the number of new non-farm payrolls continues to increase, which means that the total number of people participating in the labor force has increased.

The question arises again.

Those new nonfarm payrolls continue to increase, indicating that the U.S. economy continues to improve steadily.

That the unemployment rate has increased, indicating that the U.S. economy is beginning to look bad.

What does this combined really say?

In combination, it actually means that the U.S. economy is doing well, but the outlook is not good.

Why do you say that?

Note the new non-farm payrolls data above, which have been consistently lower since February 2022, which suggests that the U.S. economy is able to accommodate fewer and fewer new jobs, and that the elevated unemployment rate indicates that the economy is trending toward starting to get worse.

Looking at the employment situation in the U.S. before the outbreak in various industries, we can clearly see that, except for the extractive industries, leisure and hospitality, and other service industries, and the government sector, employment in all other industries has been fully repaired or even reached new highs, and the possibility of further economic repair has largely disappeared (except for individual service industries), which means that the U.S. economy has peaked.

In this case, it is normal that the new non-farm payrolls gradually decline.

Some people ask, if the U.S. economy is turning bad, then why the U.S. stocks, gold and commodities are soaring instead?

This question, I also answered in the article “high inflation + low unemployment, what combination is this”.

At this stage, what themes are the markets trading?

Whether it’s the stock market, gold or commodities, they have been trading on the theme of a Fed rate hike (and the recession that could result from it) from the end of 2021 until now, and as long as the rate hike is expected to get stronger, then U.S. stocks will adjust and fall, and as long as the rate hike is expected to weaken, U.S. stocks will rebound and rise.

Trending down in new jobs and rising unemployment points to a retreat (note not a turn) in Fed rate hikes, a retreat that will naturally bring a rise in gold, U.S. stocks and commodities

Finally, a word about the U.S. economic canary

There is an English proverb: The canary in the coal mine.

What does it mean?

In the 19th and 20th centuries, the working conditions in underground coal mines in England were relatively poor, and miners often risked their lives from carbon monoxide poisoning when they went down the mines. In this case, someone recommended the use of canaries to test the concentration of carbon monoxide in underground mines – canaries usually fly very high, usually need to inhale a lot of air, if placed in the environment with gas, canaries will be a small amount of gas content and fainted.

Once the canary is in trouble, the miners will quickly realize that the concentration of toxic gas in the mine is too high and they are already in danger, thus evacuating in time.

There is a state in the United States called Maine (Maine), in the northeast corner of the U.S. map, next to Canada

The state is small in size, even smaller in population, and although it has the largest forest cover in the country, it has an average economy that is dominated by relatively primary industries such as lumber, paper, fishing and agriculture, as well as electronics, transportation equipment, industrial machinery, leather products and shipbuilding. -Maine’s GDP per capita is among the bottom 50 states in the nation.

As a whole, Maine is either a primary industry or a small and medium-sized enterprise in the processing industry, which is not very competitive in the market, leading to an interesting consequence, that is, every time there is a recession in the United States, when the unemployment rate rises, Maine will always be the first to respond, which is jokingly called the “canary” of the U.S. recession. ”

The green line is the overall U.S. unemployment rate, and the dark red line is Maine’s unemployment rate. Since 1975, Maine has always been the first to reach the bottom or top of every round of falling and rising unemployment rates in the U.S. For nearly 50 years, there have been no exceptions – especially, if Maine’s unemployment rate starts to If Maine’s unemployment rate starts to rise, then the odds are that it will signal a new economic slowdown.

When we look at Maine’s unemployment rate now, it has been rising steadily since it bottomed out in July 2022.

In contrast, the U.S. national unemployment rate rose in July, fell again in August, and rose again in October compared to September, and some might think that maybe the unemployment rate fell again in November.

We carry out the example of Maine, in fact, is to illustrate, in the Fed does not change the rate of interest expected to raise, the U.S. unemployment rate rose in the next few months, will become a trend, not as repeated in August, and as the unemployment rate rose, the U.S. economy will gradually move towards recession.

The resistance of the Fed to raise interest rates, the next will get bigger and bigger……

 

 

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