Last Friday’s non-farm payroll numbers looked pretty strong. What’s not to love with a headline number that was miles ahead of even the most optimistic projections?
I always say you need to look to the left of the equal sign, and from that perspective, the jobs report wasn’t as strong as you might think. Other labor market measures, including job cuts, layoffs, weekly hours worked, and overall full-time employment, hint at a different narrative — one that suggests we may be in the early stages of a deteriorating employment picture.
A historically low unemployment rate has been the linchpin in delaying the recession narrative. It has been the beacon of hope, the singular number that has seemingly kept economic concerns at bay.
What the Jobs Report Is Hiding
However, the complexity of the labor market cannot be distilled into this one figure. The biggest concern? A shift from full-time to part-time employment which is at the highest level since 2020. This alone masks underlying weaknesses in the labor market, as individuals may settle for part-time roles in the absence of full-time opportunities. This also explains why small-cap stocks keep meandering.
There IS much more weakness beneath the surface, and the market knows it.
This is typically what you see at inflection points. And if the labor market were to turn, it could serve as the “proverbial crack in the dam,” leading to a broader economic downturn. The stock market, buoyed by the low unemployment rate and the Fed’s dovish stance, could be particularly vulnerable to a correction. People forget that employment data is a lagging indicator. In other words, it will be among the last things to respond. And if the underlying data isn’t anywhere near as strong as the headline averages suggest, then we are already in a weakening economy. The stock market will soon respond negatively.
The Federal Reserves’ cautious approach to rate cuts is a double-edged sword here given the way market participants reacted. On one hand, the Fed aims to maintain stability and encourage investment. On the other, it may contribute to a sense of false security among investors, potentially exacerbating the impact of a market correction should the labor market already be weakening.
The Bottom Line
Bottom line? While last Friday’s non-farm payroll number may have offered a glimmer of strength, a closer look at the labor market suggests we may be on the cusp of something weakening in a meaningful way.
This potential shift, coupled with external geopolitical and economic factors, leaves the market in a precarious position. I believe we remain in a very tricky environment. Now is not the time for anyone to get complacent.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
