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Judgment Day

The US job market is guilty until proven innocent

A pick-up in layoffs coupled with a low hiring rate is pointing to increased vulnerabilities for the American worker.

9/4/24 12:03PM

The US job market isn’t terrible. But it’s vulnerable.

That’s the key message from the July Job Openings and Labor Turnover Survey released on Wednesday morning – a report which reinforces the idea that the momentum in the labor market continues to weaken, raising the stakes for August’s non-farm payrolls report on Friday.

Of note: the number of job openings tumbled, and the number of Americans involuntarily removed from their job, to use a euphemism, spiked.

In the minutes following the release, traders briefly priced a 50 basis point cut as the most likely outcome for September’s Federal Reserve meeting.

What’s interesting is that despite this jump in layoffs, the private sector firing rate (that is, layoffs and discharges as a share of private sector workers) is still extremely low versus history.

But that contrasts with a private sector hiring rate that’s quite subdued, and suggests the unemployment rate could be materially higher than it is now.

Guy Berger, director of economic research at the Burning Glass Institute, has termed this odd combination of hiring rates and firing rates sending different signals (along with a quits rate that’s fairly low!) “The Great Stay.” Conor Sen, the founder of Peachtree Creek Investments, suggested a slightly more inauspicious name given the overall slowing in labor market conditions: “The Great Stall.”

laying off workers like its a boom and hiring like its a recession. I mean WTF 🤣 pic.twitter.com/1b3Ayo2uuH
— Dario Perkins (@darioperkins) September 4, 2024

This invites the question: what should we care about more? Low firing or low hiring?

“A decline in hiring activity is historically as damaging to workers as layoffs, and deserves to be taken seriously,” wrote Preston Mui, senior economist at Employ America, before the underwhelming July jobs report even came out. Mui flagged that the downturn in hiring preceded the increase in firing during the Great Recession.

This makes some intuitive sense: absent major shocks, we’d expect conditions at a company to move from good (sales up a lot, hiring up), to less good (demand growth slowing, hiring down), to bad (demand down, firing up) – not skipping the middle step.

So to summarize: job growth is slowing, the unemployment rate is rising, and layoffs have ticked up (at least according to the JOLTS report).

The labor market needs a boost from somewhere to reduce this vulnerability; to keep the “less good” state of affairs from turning into a “bad” one. And it needs this help... [stares in the direction of 2051 Constitution Ave., the address of the Marriner S. Eccles Federal Reserve Board Building]... yesterday.

Note: Why do we care about July data on the labor market when we already got the non-farm payrolls report for that month?!? With the August jobs report data a couple of days away? Well, the non-farm payrolls report is based on surveys performed in the middle of the month, while the JOLTS report includes data at month-end, so what we got today is a little more current (and granular).

Max Knoblauch7h

Nike’s China business declines for seventh straight quarter

Sportswear kingpin Nike reported results for its third quarter, which ended in February, after the bell Tuesday. The stock fell about 3% in after-hours trading.

For fiscal Q3, Nike reported:

Earnings of $0.35 per share, comfortably above the Wall Street consensus of $0.29 per share compiled by FactSet.
$11.28 billion in total revenue, roughly in line with the $11.26 billion estimate.

Nike’s sales in China — where the company earns about 15% of its revenue — fell 7% to $1.62 billion. That’s its seventh straight quarter of sales declines in the market, though this quarter’s was less than feared. The company had issued weak guidance for this quarter considering continued softness in the region.

“This quarter we took meaningful actions to improve the health and quality of our business,” said Nike CEO Elliott Hill. “The pace of progress is different across the portfolio and the areas we prioritized first continue to drive momentum.”

Nike shares are trading near decade lows this month, as tariffs continue to weigh on profits and shipping costs rise amid the war with Iran. As of Tuesday’s close, the stock was down 17% year to date.

Luke Kawa, Tasha Matsumoto

Stocks end worst quarter since 2022 with best day since May

Optimism that the end of the war may be near sent stocks surging.

Max Knoblauch9h

Oil-sensitive travel stocks pop following Iran state media reporting on potential war resolution

Travel stocks are surging on Tuesday as oil prices fall following reports from Iranian state media that President Masoud Pezeshkian said the country has “the necessary will to end this war,” but would only do so with guarantees that “prevent the recurrence of aggression.”

The war has sent oil prices and refining margins surging this month, causing airlines and cruise lines to cut profit forecasts despite reported high demand.

Following Tuesday’s update, shares of the big four US airlines (Delta Air Lines, United Airlines, American Airlines, and Southwest Airlines) all climbed, along with smaller rivals including JetBlue. US airlines have stopped fuel hedging in recent years, increasing their exposure to upward swings in oil prices.

Cruise stocks also rallied, with Carnival and Norwegian up more than 6% and Royal Caribbean up about 5%.

J. Edward Moreno12h

The FDA is expected to lift restrictions on certain peptides, the NYT reports

The Food and Drug Administration is expected to lift restrictions on certain peptides, allowing the experimental, often injectable substances to be sold by compounding pharmacies, The New York Times reported Tuesday.

The potential move was previously reported by The Wall Street Journal, and teased by Health Secretary Robert F. Kennedy Jr. on the “Joe Rogan Experience” podcast in late February.

Peptides have boomed in popularity recently, with search interest for “peptides” surpassing “ozempic” this month. Many of them are currently understudied and not approved for human use, a rule consumers are able to bypass by purchasing them from suppliers that sell them for, ostensibly, research purposes only.

As reports of the FDA changing its stance of peptides mount, consumer health companies like Hims & Hers and Superpower have been getting ready to roll out their peptide offerings as soon as they get the FDA's blessing.

The peptide gold rush: How impending deregulation could supercharge a shadow industry

Matt Phillips13h

Memory stocks bounce as Bernstein analyst calls TurboQuant fears “overdone”

Memory stocks rose Tuesday, after Bernstein analysts called the recent panic over Google’s TurboQuant AI algorithm “overdone.”

Bernstein analyst Mark Newman wrote:

“[Hard disk drive] and Memory stocks have sold off significantly due in part to fears from Google’s TurboQuant report. This however, should have zero impact on HDD demand and negligible impact on NAND demand. Given the stock sell-off we see this as an attractive entry point for Seagate Technology Holdings, Western Digital and Sandisk’s and upgrade WDC to Outperform.”

All three stocks were up early Tuesday, as was memory chip maker Micron.

Today’s rally stands in stark contrast to the pummeling these shares have endured over the last week, after Google Research published a technical paper on March 24 detailing its TurboQuant AI algorithm, which compresses the amount of data associated with AI operations without affecting the accuracy of AI models.

That was seen as a threat to surging AI demand for memory storage, which has supercharged prices for memory chips and memory-related stocks over the last year.