Benjamin Cowen breaks down a confusing jobs report and why nobody, including the Fed, really knows what happens next.
Key Points
Key Highlights:
- Non-farm payroll came in at just 23,000 versus 80,000 expected, yet unemployment still dropped to 4.1%, mainly because the labor force participation rate has fallen over a full percentage point since November
- Layoffs and initial jobless claims remain near 50 year lows, meaning we are not in the classic layoff spiral that typically defines a recession
- Only certain states and industries feel real weakness right now, nothing close to the nationwide pain seen in 2008 or 2001, which is why markets keep climbing the wall of worry
- The 2 year yield sitting above the Fed funds rate suggests policy isn't as restrictive as it looks, and market odds for a September hike have dropped to under 44%
Takeaway The economy isn't in a recession yet, but the margin for error is thin. A stock market correction still looks likely by September or October in line with prior midterm years, regardless of which way the Fed ultimately moves.
