The jobs number came out last week and, on the surface, it looked pretty good. The expectations were for 50,000 new jobs, but the headline number was 119,000. If history is any guide, it will likely be revised down from there. July was revised down from 79,000 to 72,000, and August was revised down from 22,000 to -4,000. Yes, that’s correct. Negative job growth (I think that’s called contraction). Now one month doesn’t make a trend, but clearly the job market has been slowing. The unemployment rate went up to 4.4% from 4.3%.
We met with one of our research partners last week and they are more concerned about job growth than inflation, which I totally agree with. But of course, the FED is still worried about the Boogieman! Always worried about inflation and minimizing the jobs number. Keep in mind that jobs are a “lagging” indicator, so when jobs finally have a noticeable slow down, it’s often too late and the FED is officially behind the curve.
We should slowly start to get caught up with economic numbers after the government shutdown.
I did see a couple things that were interesting last week. A comment from Mohamed El-Erian, former head of PIMCO, made a reference to the default spreads (insurance) on Oracle going out of business (at least not paying their bonds). They have spiked tremendously over the last couple weeks (see below).
Do I think they are going out of business or not paying their bonds? No, but given the amount of money they are spending on AI, some traders think it is more likely now that it was earlier in the year.
Moving on, one of the biggest pieces of inflation is the ‘Owners Equivalent Rent’ (OER), which the government uses in measuring living expenses. Here is the Zillow aggregate of housing costs, versus the Federal Reserve view of similar data.
Zillow:
Federal Reserve:
Those charts look completely different. And OER is 36% of the inflation number. The inflation rate is still showing 3.6% inflation for OER. No wonder inflation is not back to the 2% number the FED is looking for. That equates to roughly 1.3% just for housing.
That’s it for this week. Please let us know if you have any questions or comments about this or any other topic. We will be happy to have a conversation. Happy Thanksgiving from all of us here at MPCA. Our gratitude for each of you runs deep!