Goldilocks Vs The Bears
Using the averages for the late nineties, the Establishment Survey if it represented solid growth would gain almost 4 million payrolls in 2018. That would be an average of 320k per month. The latest estimate for 311k is actually below average. That means everyone is celebrating as some kind of blowout what would otherwise fall as a weak month under more reasonable analysis. That’s how bad the labor market has been for so many years.
And it’s an outlier, but it’s not the first. The BLS data shows that in June and July 2016, for example, payrolls gained +285k and then +325k, respectively. Taken in isolation, those two “blowout” months seemed to suggest economic acceleration in keeping with the “reflation” sentiment that was then just forming. We know, for that labor market anyway, those two perfect reports were quickly forgotten, mere statistical noise that represented instead more of the same – the good months, even two in a row, are the exception.
Average weekly earnings, which are even more noisy month-to-month, rose just 3.2% year-over-year in February after being nearly flat, +0.8%, in January.
Despite the unemployment rate sticking at 4.1% for the fifth straight month, there isn’t the slightest hint that earnings let alone wages are accelerating; nor is there any indication they are about to.
Is it the beginning of the labor market finally stabilizing after three years of slowing? Or is it Harvey and Irma?
Given the inherent lags economy to employment, it is possible that what’s indicated in February is the trailed effects of the artificial hurricane boost.
This is where the noise works against us (like the middle of 2016). There is, right now, simply no way to tell.
There's much more in Snider's article that bears a closer look.
It's interesting that he kicked off with a question about global synchronization.
Jim Bianco at Bianco Research just wrote about that. I covered it in Synchronized Global Growth is Ending: Shocks Come Next.
Where is Goldilocks?
Is Goldilocks in the room or out of the room?
Curiously, that's not even the right question. Even if Goldilocks is is in the room with the inflation and recession bears slumbering, are stock valuations so stretched that it does not matter where she is?
That's my belief. I suspect we are right about here:
Stocks are tremendously overvalued.
In Sucker Traps and the Arithmetic of Risk I noted that John Hussman expects equities to decline as much as 67% from here.
That may be a bit high, but it's a well-researched target. Even flat returns for the next seven years would crucify pension plans.
Goldilocks? No one will be talking about a Goldilocks environment no matter what inflation or jobs do once stock valuations start returning to normal.