Capital Markets Update #2

We’re interested in the employment situation in America, but admittedly it’s a bit tough to figure out.  There’s lots of data out there; some is helpful, some isn’t.  Our view is that if you’re trying to make broad conclusions about a big economy, micro or highly-specialized datasets are helpful, but can be myopic.  We tend to look at big datasets, probably like everyone else but perhaps with a different conclusion.  For instance, on a trailing 12-month basis the US has added 1.3MM jobs with 1.17MM of that coming from the private sector, according to the BLS.  While slightly below the 10-year average of 1.6MM jobs added per year, it’s not that bad.  Somewhat interestingly, nearly all hiring has come in the service sector with the majority of this gain being attributable to “private education and health services” hiring of 820k jobs, followed by 235k jobs created in leisure and hospitality.  If you look at the JOLTS survey, hires and fires have been in lockstep since 2023.  According to BLS and JOLTS, there’s 7.6MM unemployed individuals chasing 7.2MM job openings, which, while good at face value, actually represents a slightly weaker reading than pre-covid.  From 2018 – 2019, approximately 1.2 jobs were open for every job seeker, now we’re less than 1.0.  A very moderate, by historical standards, Department of Labor initial jobless claims level of ~200k/week further bolsters the view that the employment situation within the US is “stable”.  Overall, somewhat of a B ish job market reading.  For reference, if the US employment outlook has a metaphorical “canary in the coal mine” it would be some reduction of JOLTS, wage growth and weekly jobless claims data.  We provide all of that data to dispel the notion that the US job market or economy is either weak, precariously positioned at the precipice of a consumer recession, or somehow faltering.  Jobs employ people, Personal Consumption Expenditures represents about 70% US GDP, so if you have an employed consumer generating real wage growth without a significant amount of debt (see prior note on consumer health), you basically have a reliable and durable US economy.   Setting aside equity multiples or chip depreciation schedules or tariffs, basic consumer health is the prism through which we view the go-forward domestic economic outlook.  So what’s the worry?  If you were to peel back the argument that the US consumer is in danger, the essence the argument generically lies in the anticipated go-forward rate of change for US consumer health.  Is it positively or negatively sloped and, more importantly, to what degree?  We think that’s incredibly important to delineate.  Today’s consumer is actually quite strong by current and historical measurable standards.  Its not lost on us that University of Michigan Consumer Sentiment is literally nearing an all-time low, but that’s a very different dataset than empirical financial health.  Sentiment surveys are often biased based upon broader life and lifestyle conclusions. For instance, 12/19 Consumer Sentiment sat around 100, today its about 53.  Since then, we’ve seen historic wealth creation across all income levels and 6% retail sales growth, on average, according to the US Census monthly retail sales data.  One translation of this perplexing data could be the same average consumer has gotten wealthier and spent considerably more than by historical standards, but have somehow reported a lower state of financial health.  That may be better data for a psychologist than an investor.  It’s actually the perfect data for a financial advisor.  So, buyer beware as you read headlines.  Forecasting the future is a tough trick; generically, opinions are less reliable than facts, and be judicious as to what facts you use to anchor your own big opinions.