With all of the talk in the markets focused on the prospects for a U.S. recession amid slowing global growth, it was nice to see the domestic job market improve last month. Although the 151,000 increase in nonfarm payrolls missed forecasts for 182,000, at least more people found work. However, the increase in jobs does little to mask the very glaring points of concern in the report.
These concerns should not be viewed as great news, even though they will likely push out further Fed rate hikes into 2017. No sir or madam, the January jobs report will go down as confirming that there has been a sharp slowdown in the U.S. economy that could lead to at least a slightly negative GDP reading, this spring. Consequently, the market may have been correct in harshly revaluing equities last month -- and right on into February.
1. The headline number missed forecasts. Consensus forecasts on the jobs number was already dropped heading into the report. We have seen weak readings on ISM components and cautious comments on quarter-to-date demand from many multinational manufacturers. But, to get a jobs miss alongside lowered expectations will send Wall Street back to the drawing board with respect to their profit models for companies. Against such a backdrop, you get a case like LinkedIn (LNKD) -- a company that is still valued aggressively, but is producing slowing rates of growth amid a pullback in the overall economy. Come earnings time, a stock such as this gets hammered.
2 Job growth was led by retail trade. This is clearly late-cycle behavior. The latest evidence from the likes of Kohl's (KSS), Polo Ralph Lauren (RL) and Hanesbrands (HBI) suggests consumer demand has dropped off a cliff this year. Whether it's due to greater online consumption or retrenchment amid job losses in the oil patch and plunging stock prices, the consumer spending pullback is upon us. As a result, this key underpinning of the job market could reverse in coming months.
3 Job growth was also led by food services and drinking establishments. This is very late-cycle, too. Every restaurant executive I have talked to has told me that as demand has slowed in oil markets, the slowing has spread. Elsewhere, consumers are not eating out for whatever reason: Buffalo Wild Wings (BWLD) on Thursday blamed increased online shopping for keeping people away from its restaurants. Due to the tepid demand, restaurants are being very aggressive on discounts, especially during happy hour. I believe that, similar to retail, the job market for the restaurant industry could weaken in the coming months as companies adjust to existing demand rather than some overly optimistic view of the future.
4 Part-time employment was unchanged. A company adds part-time workers when salaried staff can no longer handle incoming orders. In January, growth in part-time workers was non-existent, confirming slowdowns we are seeing in spaces such as trucking and logistics.
5 Weakness in couriers and messengers. UPS (UPS) execs gain a ton of credibility with me today: the company's CFO told me earlier this week that the economy would be rather muted in the first half. The reported job losses in couriers and messengers after the holidays is yet another sign of cooling global trade.
6 November employment was the peak. Job growth in December was revised down from its previous total. Does anyone else think it's funny that this happened, given it was the month the Fed hiked interest rates? Now, one must be on the prowl for companies adjusting their payrolls on fears of an interest-rate-driven slowdown. Thanks, Yellen.
7 Unemployment rate could break 5%. Despite the unemployment rate being at 4.9%, we are still watching an earnings season riddled with profit warnings, nosediving stock prices and cautious sounding execs. Something doesn't seem right with this.