Latest / Markets with Megan: A Quick Financial Markets Update / Analyzing Inflation and Unemployment Trends | Episode 130 | 05-08-2024

Transcript

Analyzing Inflation and Unemployment Trends | Episode 130 | 05-08-2024 · Markets with Megan: A Quick Financial Markets Update

• 0:03
  Megan Horneman: For all of my listeners.
• 0:04
  Megan Horneman: I sure did miss you.
• 0:05
  Megan Horneman: I hope you missed me as well.
• 0:07
  Megan Horneman: This is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, and we apologize about the kind of lull in that we've had in releasing these podcasts.
• 0:17
  Megan Horneman: We had a massive flood in our building so our podcast studio has been basically out of touch.
• 0:23
  Megan Horneman: But we're back and we're back this week and it was quite disappointing to me that I couldn't report on Friday because, for those of you that know economic data, the first Friday of every month is like Christmas Day to me.
• 0:34
  Megan Horneman: This is when we get the labor market report and we have lots to cover with that.
• 0:39
  Megan Horneman: So we're going to just kind of do this a little bit differently today.
• 0:42
  Megan Horneman: Instead of focusing on one data report, I'm going to try and quickly go over the past three that we've gotten that were pretty important and also market movers.
• 0:50
  Megan Horneman: So let's start with that employment report that we got last Friday.
• 0:53
  Megan Horneman: We got the employment for the month of April.
• 0:57
  Megan Horneman: It came in weaker than expected at 175,000 jobs, and that was also after the prior two months were revised down by about 22,000 jobs.
• 1:06
  Megan Horneman: The markets were looking for 240,000 jobs.
• 1:10
  Megan Horneman: So a week on that headline number, the unemployment rate also increased slightly from 3.8 to 3.9.
• 1:17
  Megan Horneman: Let's look at the average hourly earnings though.
• 1:20
  Megan Horneman: This is what the Fed's looking at, and the Fed wants to see that those earnings are trending lower, not completely deteriorating, but that they're trending lower because of the fact that they are very inflationary.
• 1:32
  Megan Horneman: So on a year-over-year basis, earnings were up 3.9%.
• 1:36
  Megan Horneman: That was compared with an expectation of 4%.
• 1:39
  Megan Horneman: So that was good news for the Fed, but let's also put this in perspective.
• 1:44
  Megan Horneman: 3.9% is moving in the right direction.
• 1:46
  Megan Horneman: It's one month One month does not make a trend and also the 20 years leading up to the pandemic.
• 1:53
  Megan Horneman: The average year over year wage growth we had was two and a half percent.
• 1:57
  Megan Horneman: That's how we were able to keep inflation anchored around 2%.
• 2:01
  Megan Horneman: So still a long way to go there for the Fed.
• 2:03
  Megan Horneman: The work week this is another thing that is a leading indicator for the future of the labor market, because typically employers will cut hours worked before they cut workers.
• 2:13
  Megan Horneman: That is in a trend lower again slipped down slightly, and then, within the jobs report, temporary help this is another thing that will be cut before actually cutting jobs, and that declined again at a pretty big pace.
• 2:26
  Megan Horneman: The leaders here that we did see for the month, though, we saw gains in education and health trade and then goods producing jobs, so this report was relatively soft.
• 2:38
  Megan Horneman: The market liked it.
• 2:40
  Megan Horneman: The expectation for Fed rate cuts have now been moved from December back up to July, or I'm been moved from December back up to July or, I'm sorry, from December back up to July or September, although it's kind of like the tale of two inflations here, because then we received that very same day, on Friday, the ISM services index, and we have often talked about the two areas of sticky inflation wages and services.
• 3:05
  Megan Horneman: This service index was not good by any metric that you look at it.
• 3:09
  Megan Horneman: Not only did the index itself fall into contraction territory, it's only been the second time that it's been in contraction territory, and that's a level below 50.
• 3:19
  Megan Horneman: It's only been the second time since the pandemic, so services are slowing.
• 3:23
  Megan Horneman: It's only been the second time since the pandemic, so services are slowing.
• 3:24
  Megan Horneman: But when you look within this, the prices paid for services shot up and this is inflationary.
• 3:31
  Megan Horneman: So you have a weakening economy and inflation that continues to be stuck and stubborn.
• 3:36
  Megan Horneman: That was at a four-month high, and it's only the second time it's been this high in the past eight months and when you look at employment again, this is an indicator for the future readings we'll get.
• 3:52
  Megan Horneman: On that unemployment report, the employment part of services slipped into contraction, tori a level below 50.
• 3:56
  Megan Horneman: It was the second worst reading we've had since the pandemic.
• 3:59
  Megan Horneman: So we're seeing slowing here.
• 4:01
  Megan Horneman: You've got an economy slowing, you have a labor market slowing, but you still have inflation pressures.
• 4:06
  Megan Horneman: So we aren't getting too optimistic yet on these.
• 4:09
  Megan Horneman: Rate cuts are imminent this summer.
• 4:11
  Megan Horneman: This is one month here we're going to again.
• 4:13
  Megan Horneman: One month doesn't make a trend.
• 4:15
  Megan Horneman: Two months gets us a little bit more conviction.
• 4:17
  Megan Horneman: Three months is an even higher conviction.
• 4:20
  Megan Horneman: The last report I'll just touch on was consumer credit.
• 4:23
  Megan Horneman: We like to look at this because it does give some idea of what the consumer, how they're spending.
• 4:28
  Megan Horneman: Considering savings is so extraordinarily low Consumer credit revolving credit, which includes credit cards, that is.
• 4:36
  Megan Horneman: Now it did tick a little bit higher and made a new, fresh new record high.
• 4:40
  Megan Horneman: So consumers may be spending they're spending it on credit cards.
• 4:44
  Megan Horneman: Inflation is stubborn and the economy's weakened.
• 4:47
  Megan Horneman: The Fed is in a pickle here and we will continue to look at this data going forward.
• 4:52
  Megan Horneman: This week we'll be back out with the preliminary reading on consumer sentiment and that has been a market mover in the past and also helps us give us some indication not only how they feel about inflation, but also possibly future spending trends.
• 5:05
  Megan Horneman: That's all we have today.
• 5:07
  Megan Horneman: Sorry that we missed out the past few days, but we will be back, I promise, and if you have any questions or comments, please feel free to reach out to podcast at Verdence.
• 5:14
  Megan Horneman: com.
• 5:15
  Megan Horneman: Thank you.