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The Great Versus The Good

By David Stockman  |  November 8, 2019

Let’s see…

The New York Fed Staff Nowcast report for fourth-quarter GDP growth stands at 0.73% as of this morning. That’s down from a prior reading of 0.8% on November 1.

According to the folks who did the work, “negative surprises from lower than expected exports and imports data accounted for most of” the 0.1 percentage point decrease.

Folks, Trade War or not, the U.S. economy is not in a good place.

It’s hard to hear that message amid all the noise from Wall Street spin doctors. It gets loudest around the monthly jobs report on the first Friday of the month. That’s because we’re talking about the broadest sample of the economic-data-consuming public.

A lot of us can relate, in other words, to what it means to have a job or not have a job.

And Bubblevision sure wants to set the tone for that conversation.

It is, almost literally, their job to position the junk data emanating from the Bureau of Labor Statistics (BLS) as evidence that all is great on Main Street. That’s how they get to their inevitable bottom line: Today’s stock market is a buy… and so will be tomorrow’s too.

None of That Is True, Of Course

Unless you think bar, restaurant, and hotel jobs are the essential ingredients of a “great” American economy, a more sober look beneath the headline is warranted.

Start with the fact that 48% of the new jobs created in October – 61,000 of the 128,000 total – were in those categories. They pay an average of $22,000 a year.

Here’s another thing: Job slots don’t pay the family bills. Labor-market income comes from the rate of pay times hours worked. And the trend of the latter is not close to “great.”

During October, in fact, the aggregate hours gain was just 1.1% versus October 2018. And the slowing trend can’t be gainsaid. Between the third quarter of 2010 and the third quarter of 2018, private-sector hours worked grew at an average annual rate of 2.1%.

The October 2019 figure posted at just 52% of the prior trend.

Let’s Talk Hours Growth

Slowing hours growth comes first, then the recessionary plunge.

As of the first quarter of 2007, hours growth versus the prior year was still rising by 2%. But, over the course of the next 12 months, it steadily weakened. It turned negative in the second quarter of 2008, then plunged violently after the stock market meltdown in September of that year.
There’s nothing in the BLS release for October to suggest the recent sharp slowing of hours growth is some aberration that’ll soon reverse. To the contrary, based on data, this going-on-126-months-old, debt-encumbered “recovery” cycle is likely heading for a swoon like the one that came after the housing bubble reached its apex.

The jobs market doesn’t work like the Ohio State marching band, in perfect alignment. It proceeds irregular rows, reflecting the wide range of sensitivities in the Main Street economy.

At cyclical turns, the U.S. employment “band” gets especially irregular. The goods-producing sectors – mining and energy, manufacturing, and construction – fall by the wayside first.

Hours growth in the goods sector fell off a cliff in 2019, reflecting waning tax-cut tailwinds and waxing Trade War headings. In fact, the gain in October was just 0.53% versus October 2018. That’s about as close to stall speed as you please.

During the last cycle, hours growth in the goods sector rolled over in early 2007 after growing by 3% to 5% per year during the previous year and a half.

Annualized pay equivalents in the goods sector exceed $61,000, so the disappearance of hours-growth obviously causes a sharp curtailment of total income and spending growth.

Hours Growth Is Slowing Sharply

The mix of hours is shifting to lower-pay positions. And there’s been no acceleration in the rate of hourly pay growth at all.

Average weekly earnings growth has slowed sharply from an average of 3.3% during the 2018 sugar high to just 2.7% in October. At the same time, the Consumer Price Index trend has been creeping higher.

Alas, what counts for economic health broadly is inflation-adjusted take-home pay. That’s what fuels household consumption. And Bubblevision’s hero is the ever-resilient consumer…

But the growth rate for weekly wages is visibly shrinking. In May 2018, they were up by 3.24% from the prior year, compared to a 2.1% reading on the 16% Trimmed-Mean CPI.

So, the implied real wage gain amounted to 114 basis points compared to a year ago. That’s nothing to write home about. But at least it’s a positive integer.

By contrast, the 2.74% nominal weekly wage gain posted for October 2019 amounted to just 46 basis points over the trailing CPI at 2.28%.

That’s not “great.”

It’s not even good.

Great and Good

This is the most politicized market in history. And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Well, The Stockman Letter is made for times like these. And we’ve updated our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

You’ve got to be nimble to win in this market…

If You Need Your Money in the Next 5 Years…

America is at a crossroads. The middle class is disappearing… government spending is out of control… and the implosion of Bubble Finance will cause the greatest market crash in history. So, if… Read More
David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR