April jobs report weaker than expected: The Bureau of Labor Statistics said Friday that the U.S. economy added 175,000 jobs last month, less than the 238,000 that economists had expected and a decline in December. This was significantly lower than the average monthly increase in employment of 274,000 people from March to March.
While one month’s worth of data alone doesn’t determine trends, some bear market observers say the new numbers could portend more significant weakness to come.
David Rosenberg, founder of Rosenberg Research and chief U.S. economist at Merrill Lynch, who led the economy into a recession in 2008, considers himself one of the skeptics about the U.S. economic expansion. .
Rosenberg said in a note to clients on Friday that key monthly employment statistics are inconsistent with BLS’ corporate employment dynamics data, and that the U.S. economy will grow by 19% in the third quarter of 2023, according to the latest available numbers. He said this indicates a decrease of 2,000 people. During that time, the U.S. economy added 640,000 jobs, according to the Nonfarm Payroll Survey.
Nonfarm employment statistics are also inconsistent with BLS’s quarterly employment and wage statistics, which show that employment growth slowed significantly in the third quarter of last year.
Given this disparity, Rosenberg said nonfarm payroll data is “overstated by historic proportions” and criticized the methods BLS uses to collect the data. The BLS surveys a sample of businesses for its monthly reports, but Rosenberg said the response rate is low and some businesses are closing and employees are taking jobs elsewhere. They argued that the findings were inaccurate because the bureau couldn’t tell if they were looking for them.
Therefore, a large downward revision to nonfarm payrolls will occur in the coming months, Rosenberg said, much to the surprise of investors and the Fed.
“The proposed amendments will not be announced for another six months,” Rosenberg said. “If they were to be announced, it would be a shock not only to the Fed but also to the markets.” “The Fed now intends to remain on the sidelines as it closely monitors lagging and contemporaneous indicators with large errors, and the longer it waits, the more work it will have to do on the interest rate side. Shades of 1991, 2001 and 2008.”
In addition to believing the employment report is skewed, Rosenberg has said in recent months that stock prices and valuations are decoupled from macroeconomic conditions.
In an April 23 memo, he said AI stocks, including some of the largest companies by market capitalization, were in a bubble that was now deflating.
“Last week’s market action was part of the air coming out of the AI balloon, with Nvidia experiencing its worst single-day decline since March 2020. Strong upward momentum driven by AI is now , we’re heading for a reversal,” Rosenberg said.
The graph below shows the AI boom (represented by the yellow line), with AI stocks up hundreds of percent since 2022.
Rosenberg research
Economic downturn or no economic downturn
Rosenberg has been notoriously bearish in recent years, repeatedly warning of a recession.
But so far, a recession has not materialized. Despite the Fed’s aggressive interest rate hikes, the unemployment rate remains below 4%, and consumers continue to open their wallets even as inflation remains high.
Economists’ consensus is that there is a 40% chance of a recession next year, and top stock market strategists expect the S&P 500 to end 2024 in the green, according to a February Bloomberg survey. .
But while the outlook for the U.S. economy has generally improved over the past year, there is still a good chance of a recession. Classic recession indicators, such as the U.S. Treasury yield curve, which has inverted every recession since the 1960s, continue to flash warning signs.
Some labor market indicators have also deteriorated due to the previous recession. For example, a flurry of layoff announcements suggests that unemployment claims may soon rise.
pantheon macroeconomics
As Rosenberg points out, the longer the Fed holds interest rates the higher the risk of a recession.
“My biggest concern is that the Fed has focused almost exclusively on flawed government data releases, and is now shunning any evidence of moderate inflationary pressures or economic softening from its broader research and proprietary Beige Book. “We ended up making the wrong policy by waiting too long to lift financial restraints,” Rosenberg said.
