LinkUp Forecasting Net Gain of 260,000 Jobs For September

[Note: Our Non-Farm Payroll (NFP) forecasting model does not include any adjustments for seasonality, not does it take into account particularities associated with severe weather. In the case of our September NFP forecast, we did not make an adjustment to our methodology or our final forecast figure that would factor in the impact of Hurricanes Harvey, Irma, and Maria. As a result, we suspect that our forecast of a net job gain of 260,000 jobs in September will be quite a bit higher than September’s actual Non-Farm Payroll number. However, given the significant increase in job openings seen in our job search engine in August, we maintain our conviction both that September’s job gains will be higher than consensus estimates of 80,000 jobs and that the jobs gains one would have otherwise expected to see in September under normal circumstances will simply be pushed into October/November].

While there is certainly plenty of room for debate as to how accurate the statement actually is, there is no doubt that the current market environment is testing the validity of the oft-cited adage that markets hate uncertainty. Between the horrific chaos of the Trump administration and the absolute shit-show in Washington to the myriad nightmare scenarios escalating seemingly everywhere throughout the world, the fear, uncertainty and doubt triumvirate has never been more ubiquitous, intense, and sustained. And as if we needed an exclamation on top of it all, an equally grim trio in the form of hurricanes Harvey, Irma and Maria has presciently foretold what’s in store for us as we continue to destroy the planet while Trump mocks the Paris Climate Accord.

And yet despite the unfolding apocalypse, the markets keep rising and volatility keeps falling, not only defying logic but demonstrating a jaw-dropping obliviousness to anything happening anywhere and everywhere around the world these days. Year to date, the S&P 500 is up 12%, the Dow is up 13%, and the NASDAQ is up 20% while the VIX remains at historic lows. Just focusing on the U.S., the markets have shrugged off every single chaos-related headline thrown at it this year including the incessant attempts at repeal and replace, the lack of an infrastructure spending plan, insane immigration policies, the slim odds of meaningful and productive tax reform, threats of a government shut-down, possible failure to raise the debt ceiling, an opioid epidemic, a civil war in the Republican party, the ongoing Mueller investigation, Russian election meddling, cyber attacks, increasing polarization, growing civil unrest, and rising racial tensions, to name just a few.

And then there is the uncertainty in the more routine, ordinary stuff like the economy, the labor market, and Fed policy. The current expansion is approaching 100 months in length, making it the 3rd longest in U.S. history according to Goldman Sachs, going back across 33 business cycles to 1854 (’91-’01 was 120 months and ’61-’69 was 106 months). With each successive quarter of continued growth, the likelihood of a near-term recession rises and the only question is not if but when it will occur.

Through that expansion, the economy has generated net job gains for a record 83 consecutive months. And yet those gains have been undercut by unprecedented job dislocation, anemic wage growth, a persistently low labor force participation rate, and alarming income inequality. And in the current full-employment environment (which we argue we’ve been in for over 18 months), combined with the administration’s wildly counter-productive immigration policy, most businesses have long been facing the challenge of a protracted inability to fill open jobs. While it may have taken longer than anticipated to become evident, the most certain course of action businesses will take under such circumstances is to raise wages. But as Fed Chair Janet Yellen admitted in a speech this week, the Fed’s understanding of inflation is ‘imperfect’ and the persistent lack of inflation remains ‘a mystery.’ We’d argue that businesses have been raising wages for far longer than most economists would believe and at a higher rate than official numbers would indicate.

Industries showing the largest gains in job openings included Information, Transportation, and Professional Services, while Retail and Wholesale Trade showed the largest declines.

Labor demand by sector in August reflects trends seen across sectors for the past 12 months.

For our monthly Non-Farm Payroll (NFP) forecast, we use a paired-month methodology where we normalize the set of employers in our month to month comparison (in this case the July/August comparison). That analysis results in even more significant new a total job gains of 17% and 5% respectively.

With a 50/50 blended average of new and total job gains of 10.9%, we are forecasting a net gain of 260,000 jobs in September.

So perhaps it’s not that markets hate uncertainty but rather it’s that markets love slow, steady, and sustained global growth matched by record-setting job gains. Either that, or maybe simply that markets love massive flows out of actively managed funds into passive index funds and ETFs, thus making alpha brutally difficult to find and making any moron look brilliant, at least temporarily until he loses his house.

Regardless, the markets will likely be surprised by next week’s blow-out jobs report for September. Under normal circumstances, one would suspect a significant market reaction, particularly to what will likely be a material rise in the probability of a December rate hike. But things are not at all normal these days and given the seemingly opioid-induced nonchalance to the 9-mile skid of a year, it shouldn’t surprise anyone if there is actually no reaction at all.