Job Market Signals Amid the Noise

Jeffrey Roach:

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with an update on what's new in the macro landscape and a call to action for investors. First, storms likely distorted the latest jobs report. As we've highlighted earlier, investors should expect choppy markets for a variety of reasons, and data distortions add to that noise. So let's talk about the latest payroll report, arguably the most impactful for markets. There are two main surveys supporting this monthly jobs report. One survey is for businesses or establishments, as we call it, and the other is for households. Given the acute weather-related challenges in the establishment survey, I think it's helpful for investors to focus on the household survey this month. So here are a few highlights. The percent of long-term unemployed rose to 22% of total unemployed persons. Now, before the pandemic shutdowns, that percentage was 19.5%. Among the unemployed, the number of permanent job losers edged up to 1.8 million in October versus 1.2 million in February 2020.

Jeffrey Roach:

Bottom line is this. Bond yields plummeted immediately following the employment report, as investors believe the macro landscape is indeed weakening. Given the storm related distortion, the Fed is in a tight spot as they adhere to data dependency. Further complicating things for policymakers are the recent data revisions to income and spending and savings rates. That said, the Fed will likely cut rates in the remaining two meetings as economic conditions weaken. Second, churn is still high in healthcare. In the past few months, we've seen workers less likely to quit in most industries. One call-out is in the leisure and hospitality space. Churn is historically higher in that sector, as you can imagine. As skill levels increase, job stability often increases. So what's noteworthy now is despite the pullback and quits as the job market cools, we still have above average churn within the healthcare sector. And this could continue as demand is strong.

Jeffrey Roach:

Third, housing affordability will alter consumer behavior. Affordability is the lowest and over a generation as supply is low and rates are still elevated. Housing affordability was particularly low during the period immediately preceding the great financial crisis. And it comes as no surprise, no dock loans and weak lending standards created an environment ripe for home prices to skyrocket. However, in recent times, the housing market is reeling from low supply of homes available for sale, especially for entry-level homes, high mortgage rates, and a market still finding equilibrium after millions moved from higher cost of living areas to lower cost of living areas. We should expect long-term impacts as individuals adjust expectations amid housing imbalances. Well, what does this mean for markets? Despite bumpy reactions to recent earnings, corporate America has displayed strong earnings power and helped justify those current prices. Historically, favorable season for the stock market does lie ahead despite heightened policy uncertainty. Markets still need to adjust to what may be a slower rate-cutting cycle than previously anticipated, but more cuts are forthcoming. That's all for now. If you want more insights on global market trends, follow us on social media and take care.