The Big Drop in Rates Will Come When We Get a Negative Jobs Report
The big move in interest rates that everyone is expecting at some point will very likely come as a result of a jobs report.
This is because the Fed is obsessed with the labor market, as they are convinced that strong labor markets drive inflation, as per the Philips Curve.
This is a false correlation according to most commentators like Steve Forbes, Jeff Snider, and about a million others because there is no data to back up the conclusion.
Whenever former Fed Chair and current Treasury Secretary Janet Yellen is asked about the strength of the economy she cites the strong labor market and low unemployment rates as proof that the economy is as strong as ever.
This absolutely drives analysts nuts though because it is well-known among most of them that unemployment rates only shoot up AFTER recessions set in.
Labor Hoarding
The reason jobs fall AFTER a recession sets in is because employers cling to their trained employees as long as they possibly can because it is so costly to (A) not have them when you need them when business is booming; and (2) train new employees.
This is taking place now en masse, as employers everywhere are waiting for a soft landing or the big fourth-quarter economic rebound that some analysts, much of the mainstream media and government officials are predicting.
Enter Snider: Weak Manufacturing Precursor to Weak Service Sector
In this video from yesterday, BREAKING NEWS: 77.6% Of US Job Market is IN UNDER THREAT, Snider explains just how weak the manufacturing sector is now – and how even the Fed admits it, but claims our mighty service sector will keep the economy strong.
Snider then explains how former Fed Chair Bernanke made the exact same claim in 2008, right before Armageddon. 😊 Snider’s point is that a weak manufacturing sector is simply a harbinger for a weak service sector to follow.
As manufacturers, who were busy filling backlogged orders from COVID, realize just how slow the economy is now, they will start to lay off in droves, and the service sector will then follow.
Today: Unemployment Down and Rates Are Too – What Gives?
Shockingly, rates fell today after a jobs report was released that showed that the unemployment rate fell to 3.5%! This is “shocking” because “good economic news” usually pushes rates higher.
BUT, rates fell because the bond market dug into the data. That data showed (1) job numbers were only up because the number of part-time jobs increased, while the number of full-time jobs fell; (2) the average number of hours worked per week fell; and (3) the number of temp workers fell for the 3rd straight month. These are all strong recession signals and clear cracks in the labor market.
Conclusion: We Will See Significantly Worse Jobs Reports and Rates Will Fall Significantly in Response.
The question, as always, is when – but the day appears to be getting closer based on today’s news.
In any case, if anyone is trying to predict interest rate movements, they should watch jobs data as much as inflation data.
Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
