‘WRONG EVERY TIME’: Market expert slams the Fed’s bad calls on the economy

Here's a summary of the provided YouTube transcript:

Key Concepts

• AI Trade: A market trend driven by interest in Artificial Intelligence, significantly boosted by NVIDIA's performance.
• Household Data vs. Payroll Data: Two methods for measuring employment. Household data surveys individuals and is considered more accurate for identifying economic turning points. Payroll data collects employer-reported numbers and can be subject to imputation and revisions.
• Bureau of Labor Statistics (BLS): The government agency responsible for releasing employment data.
• Government Shutdown: A period of government closure that can impact data collection, as seen with the cancellation of the October jobs report.
• Wage Growth: A key metric to monitor for its impact on real income and inflation.
• Unemployment Claims: A more timely indicator of the labor market's health compared to the monthly jobs report.
• Federal Reserve (Fed): The central bank of the United States, whose monetary policy decisions are influenced by economic data.
• Treasury Yields: The interest rates on U.S. government debt, which are influenced by market forces and Fed policy.
• Shadow Banking System: Financial activities conducted outside of traditional regulated banks.

Market Performance and Economic Indicators

The stock market opened strongly, with the Dow Industrials up nearly 300 points and the Nasdaq up 453 points. This surge is attributed to NVIDIA's robust earnings report and positive forecasts for the next quarter, which has reignited the AI trade. Across the board, stocks are higher.

Yields are also on the rise, with the 10-year Treasury yield up 1.1 basis points to 4.15%. This comes ahead of the September jobs report, due in 12 minutes. Economists anticipate 50,000 jobs added for September, with the unemployment rate expected to hold at 4.3%.

Impact of Government Shutdown on Jobs Data

The Bureau of Labor Statistics (BLS) has canceled the October jobs report due to an inability to collect sufficient household data during a record 43-day government shutdown. The BLS will incorporate payroll numbers into the November report, which will be released after the Federal Reserve's final meeting of the year. This means the September report is the last jobs report before the Fed's upcoming meeting.

Analysis of Employment Data and Economic Trends

Stephanie Pomboy, President of Macro Mavens, highlights the difficulty in making predictions without household data, which has been absent for some time. She argues that household data is a better indicator of economic turning points because it surveys individuals, whereas payroll data relies on employer collections and can involve imputation, potentially creating distortions.

Key Arguments and Evidence:

• Distortion in Payroll Data: Pomboy suggests that during economic slowdowns, payroll data may impute job creation from business start-ups that are not actually happening. This is particularly relevant given the current environment of corporate bankruptcies and businesses closing faster than opening.
• Evidence of Slowing Employment Growth: Pomboy points to a trend of increasing layoff announcements, a dour consumer sentiment reading from the University of Michigan, and a steady slowing of hiring plans reported by small businesses. These indicators collectively suggest weaker employment growth, regardless of the September number.
• Timeliness of Unemployment Claims: Pomboy emphasizes that unemployment claims data, released concurrently with the jobs report, is a more timely and real-time indicator of employment trends than the September jobs report itself, which is considered "stale" by the time it's released.

Focus Metrics for the September Jobs Report

When analyzing the upcoming September jobs report, Pomboy's primary focus is on wage growth. She hopes that if wages can hold steady while inflation slows, real income growth can accelerate, providing relief to households. While she acknowledges the importance of where job growth is coming from, she reiterates that this data is stale.

Federal Reserve Policy and Market Concerns

The September jobs report is the last before the Fed's December meeting. Fed Governor Myron has called for a "full reset," warning that over a decade of tightening has pushed traditional lending into the shadow banking system. He argues that the current framework shields banks from assessing liquidity, which should be driven by market forces, not price differences.

Pomboy agrees with Governor Myron that the Fed has made missteps in its policy decisions over the past few years. She sees his comments as an effort to address a broader concern for markets and the economy: getting the long end of the Treasury curve down. She notes that the 10-year yield is higher now than when the Fed first cut rates. Governor Myron has proposed a mechanism to create more demand for Treasurys from the banking system.

Conclusion and Takeaways

The market is reacting positively to NVIDIA's strong performance, driving an AI-led rally. However, the upcoming September jobs report is clouded by the absence of crucial household data due to the government shutdown, making payroll data less reliable for identifying economic turning points. Experts like Stephanie Pomboy suggest that other indicators, such as layoff announcements, consumer sentiment, small business hiring plans, and particularly unemployment claims, provide a more accurate and timely picture of a slowing labor market. The Fed's December meeting will be closely watched, with concerns about past policy missteps and the need to address liquidity and Treasury yields being highlighted by Fed Governor Myron. The focus remains on wage growth as a key indicator for household relief amidst slowing inflation.