Hurrah for Thanksgiving Day!
With Thanksgiving family frivolity in high gear, HAI will be extremely brief this week. Perhaps the ultimate highlight of this holiday-shortened trading week was the rising odds of another 25-basis-point rate cut at the next FOMC meeting from around 50% earlier in the week toward close to 70% late week. The primary reason for the increased rate cut bets was disappointing economic data that played nicely into the Fed’s rate-cutting narrative.
The recent data deluge started with old news that amounted to no news—that GDP in the third quarter, with all of a month remaining in the fourth, was unchanged, with the original print of an annualized growth rate of 2.8% holding up post revision. Later in the week, however, continuing claims data remained stubbornly high. At 1.907 million continuing claims for the week ended November 16th, the seasonally adjusted print was the highest since November 2021. That’s now up 42% since bottoming at 1.339 million in the week ended June 3, 2022. Meanwhile, as of this week, Bloomberg’s Bankruptcy Index is also up off cycle lows by a sharp 173%.
Last week we learned that the Bureau of Labor Statistics’ latest release of the Quarterly Census of Employment and Wages (QCEW) for the period ended June 30, 2024 confirmed that monthly non-farm payroll data has been dramatically overstating job growth. The latest QCEW eliminated more than half, or 1.2 million, of the non-farm payroll estimated job growth for the period.
If job growth is overstated, income is too. Sure enough, on Wednesday of this week we found out that the Bureau of Economic Analysis overstated wages by a massive $91.8 billion as revisions axed wages from $156.8 billion to just $65.0 billion. That’s not just a moderately revised picture; it paints an entirely new and unflattering portrait of an altogether different reality.
While Wall Street initially trades the headline data releases, Main Street reality is the accurate revised data. Of course, reality eventually tends to catch up even to Wall Street. As HAI favorite economist Dr. Lacy Hunt noted this week, “The economy looks more and more like 2008, when for many the economy appeared to be just fine. Then came the downward revisions. When all was said and done, the NBER determined the recession started in December 2007. The deep revisions are continuing just as sixteen years ago.”
And we should continue to expect more negative revisions. As Dr. Hunt added, “The significant downward revision in the income components only reflects the lower entry point from the QCEW at the end of the second quarter. The 1.2 million overshooting of payroll jobs compared with the QCEW is for June 30, 2024. If the nonfarm payroll survey continued to overstate job growth in the third quarter, the health of the consumer sector will look even worse. The bottom line is that the consumer is much more fragile.”
HAI is confident that Q3 nonfarm payroll data was overstated, that more revisions are coming, and that the health of the consumer is much more fragile than Wall Street presently appreciates. In a 70% consumer-driven economy, that means the first year of the second Trump term could be even more eventful than already expected, as 2025 becomes a truly pivotal year on multiple fronts.
For now, it’s still 2024, and its:
Over the river, and through the wood,
To grandfather’s house we go;
The horse knows the way
To carry the sleigh
Through the white and drifted snow…
Over the river, and through the wood,
To have a first-rate play.
Hear the bells ring
‘Ting-a-ling-ding’,
Hurrah for Thanksgiving Day!”
Happy Thanksgiving all!
Weekly performance: The S&P 500 gained 1.06%. Gold was off 1.15%, silver lost 0.73%. Platinum was down 2.15%, and palladium was down 2.33%. The HUI gold miners index was down 2.34%. The IFRA iShares US Infrastructure ETF was up 0.74%. Energy commodities were volatile and mixed on the week. WTI crude oil lost 4.34%, while natural gas gained 2.31%. The CRB Commodity Index was off 2.01%. Copper gained 1.32%. The Dow Jones US Specialty Real Estate Investment Trust Index was up 2.35%. The Vanguard Utilities ETF was up 1.74%. The dollar index was down 1.56%, to close the week at 105.83. The yield on the 10-yr U.S. Treasury was down 24 bps to close at 4.18%.
Have a wonderful Thanksgiving weekend!
Best Regards,
Morgan Lewis
Investment Strategist & Co-Portfolio Manager
MWM LLC
