Rug pull | Jobs Data JUST OUT Shocks Fed

Labor Market Analysis & Economic Outlook - December Data

Key Concepts:

• Goldilocks Economy: An economic condition characterized by moderate economic growth and stable prices, avoiding both recession and high inflation.
• Labor Force Participation Rate: The percentage of the civilian noninstitutional population that is working or actively looking for work.
• Establishment Survey vs. Household Survey: Two different surveys used to measure employment; the Establishment Survey focuses on businesses, while the Household Survey focuses on individuals.
• Long-Term Unemployed: Individuals who have been unemployed for 27 weeks or more.
• Steepener: The difference in yield between long-term and short-term Treasury bonds; a rising steepener can indicate recessionary concerns.
• Dead Weight Loss: Loss of economic efficiency that can occur when equilibrium for a good or service is not Pareto optimal or is not achieved.
• Means of Production: The physical, non-human inputs used for production, such as factories, machinery, and tools.

I. Jobs Data Overview & Initial Reaction

The December jobs report indicates a labor market that is slowing but not collapsing. Total job creation for the year reached 584,000, averaging 49,000 jobs per month – significantly lower than the over 2 million jobs generated in 2023. Despite this slowdown, the speaker argues the data is “somewhat decent” and challenges the narrative of a rapidly deteriorating job market. The initial expectation of 70,000 jobs created was missed, with the actual number coming in at 50,000. However, the speaker notes that anything over 40,000 is considered stable, aligning with Federal Reserve Chair Powell’s view of a 40-60,000 job range as acceptable.

II. Impact on Rate Cut Expectations

The jobs data effectively diminishes expectations for interest rate cuts in January and potentially March. The market currently prices in a 5% chance of a cut in January and a 28% chance in March. The speaker believes rate cuts are unlikely until at least June 17th, coinciding with the potential appointment of a new Fed chair – a figure the speaker views with skepticism, preferring Myron or Waller. The speaker frames this situation as a “Goldilocks” scenario: not great, not terrible, sufficient to support stock market gains and broader market participation.

III. Data Revisions & Unemployment Rate Dynamics

The jobs reports for October and November were significantly revised downwards. October’s initial negative 105,000 revision was worsened to negative 173,000, and November was revised down by 8,000 to 56,000. Conversely, the unemployment rate fell to 3.7% (from 3.8%), aided by a slight decrease in the labor force participation rate. The speaker highlights the Fed’s focus on the headline unemployment rate, noting that this “not great, not terrible” situation is causing anxiety in the bond market, with the 10-year Treasury yield remaining elevated and the 2-year yield rising. A rising steepener (the difference between the 10-year and 2-year yields) is flagged as a potential recession indicator, with a level of 1.25 being a concerning threshold.

IV. The Long-Term Unemployed & Recessionary Signals

A key concern raised is the continued rise in the number of long-term unemployed (those unemployed for 27 weeks or more). The speaker emphasizes that this metric historically only declines during a recession. While acknowledging the argument that artificial intelligence might be altering this dynamic, he remains skeptical. He presents a chart illustrating this trend, noting that the number has been increasing for some time.

V. Sectoral Breakdown & Private vs. Household Payrolls

The job gains were distributed across multiple sectors, with leisure and hospitality adding 47,000 jobs and healthcare adding 40,000. Manufacturing experienced a decline of 8,000 jobs, and goods-producing sectors lost 21,000 jobs overall. Private payrolls grew by only 37,000, significantly below expectations of 75,000 and a downward revision of 19,000 from the prior month. However, the household survey showed a positive gain of 232,000 jobs, a discrepancy the speaker acknowledges could be due to catch-up effects from October or data manipulation.

VI. Economic Outlook & Fed Policy

With the Atlanta Fed’s real GDP estimate at 5.4% (and 4% previously), the speaker believes rate cuts are unlikely in the near term, despite the underlying economy needing them. He expresses hope that the AIPA tariffs will be overturned by the Supreme Court. He also addresses the question of why the Fed primarily bails out wealthy individuals, explaining that the Fed’s tools are geared towards supporting those with assets (houses, businesses, debt) rather than providing direct assistance to the poor. He attributes this to the inherent limitations of government intervention and the potential for fraud in welfare programs.

VII. The Fed’s “Ponzi Scheme” & Wealth Creation

The speaker frames the Fed’s actions as a “Ponzi scheme” that prioritizes bailing out the wealthy, with the expectation that this will trickle down to the broader economy. He argues that the key to benefiting from this system is to become an “owner of the means of production” – owning stocks, real estate, or starting a business. He emphasizes the importance of understanding the rules of the game and actively participating in wealth creation. He uses the analogy of the Titanic, stating that “first class people always get on the boat first.”

VIII. Conclusion & Cautious Optimism

The speaker concludes that the current economic situation is not indicative of an impending collapse, suggesting a potential for a “soft landing.” He acknowledges the bullish aspects of the data but urges caution. He anticipates continuing to analyze the data and provide updates through his course member live streams and the Alpha Report (available at mekevin.com). He notes that data from the ISM, S&P, and Jolts reports also support the view that the economy is not currently falling off a cliff.

Notable Quote:

“The Fed only bails out rich people because they do not have the functions to bail out poor people.” – Kevin Prah, financial analyst.