David Rosenberg is a legend so modest you might struggle to recall him. And he’s unflinchingly honest.
Perhaps that combination explains why, after decades with the old Merrill Lynch, he left Wall Street for a berth at Gluskin Sheff in Toronto.
He’s also been studying weeds of economic cycles since long before these headline-reading algos were invented and this current crop of heat-seeking day-traders was even born. He’s seen, time and again, what happens just as the cycle turns…
Is it irony that Rosie, a Canadian, has a better understanding of how most Americans actually work – which is by the hour and by the gig – than the “greatest economy ever!” cheerleaders otherwise so common to Bubblevision?
Well, it’s a little tragicomic that his grip on this fundamental aspect of a market-based economy exceeds that of the federal agency charged with keeping “official” count of things like how many people are working and how many hours they’re putting in on the job.
Indeed, when you look at it from a modest-and-honest perspective, the report on the employment situation for July from the Bureau of Labor Statistics (BLS) includes some rather concerning information about a coming recession…
Here’s How It Works, Folks
Hours worked cool off first, then whole bodies are downsized.
You see, the BLS reports, at the headline level, a pure body count. Last month, as Bubblevision ballyhooed, it was 164,000.
But 10 hours a week at a checkout counter, 30 hours in a daycare center, and 50 hours on a steel-mill shift are all the same to the nonfarm payroll print. A pure body count simply does not reflect the realities of Main Street living in the 21st century.
The weekly aggregate hours index is the body count multiplied by the average weekly hours worked. As Rosie notes, it peaked in January 2019. And it’s been sliding ever since.
That’s a sharp divergence from the 2.1% gain in aggregate hours during the prior 12 months.
A Great Overstatement
Clearly, the average nonfarm payroll gain of 165,000 jobs per month since January is overstating the strength of the labor market. Actual labor hours consumed by the U.S. economy were 0.4% lower in July than at the beginning of the year.
Average weekly hours worked has been sliding since January 2019 as well. The reason for falling average hours is reduced work schedules generally. It reflects a “mix” shift toward sectors with lower average hours per week and also lower “value added” per employee.
The year-over-year rate of gain in the goods-producing sectors has fallen sharply, from 690,000 in July 2018 to just 338,000 in the most recent BLS report. Yet the goods producing sector averages a high 41.0 hours per week.
By contrast, the year-over-year rate of gain for leisure and hospitality has accelerated from 260,000 last July to 377,000 this July.
The gain for health care and social service employees has increased from 371,000 in July 2018 to 548,000 in the month just posted. But average weekly hours in these sectors are much lower, at 25.8 hours and 32.9 hours, respectively.
The implications of a rapidly decelerating goods-producing sector are clear. As we near the end of the cycle, the nonfarm payroll body count is increasingly overstating the strength of the jobs market.
Meanwhile, the hours-driven Main Street labor economy has already stalled.
That’s why David Rosenberg concluded the 164,000 jobs gained in July were more like 210,000 jobs lost in July.
Back To Basics
Desperate times call for… “common sense” measures.
And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.
We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.
I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”
All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…