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I don't know boys and girls, I think they're trying to pull a fast one on us again. The Bureau of Labor Statistics released jobs data on Friday. We got to touch on some sussy baka stuff in the background going on over there. But also, we got to touch on the ISM employment read this morning because it was uh the one part of the whole freaking report where they're like, "What the HE-double-hockey-sticks is going on here?
Smells like some bull crap. Wait. Sorry. I sneezed when I'm allergic to All right, anyway. Sorry. So, uh employment shrank by the most since 2023 the same time as input prices accelerated sharply. Uh if you actually go on over to that ISM report though to see what's going on, you find that they themselves are surprised.
They look at the stat data, they're like, "Wait a minute. This shouldn't be this bad. What's going on here? This is a bit of a surprise." And then, I go into the BLS data and there's some nuggets in there for us as well. Watch this. So, if I type in employment over here, we'll actually find continuing strength in business activity, new orders, and backlog, but unemployment index dropped the lowest level since December of 2023, which was a surprise as they indicated that employment is overall contracting after 3 months of expansion.
Lower employment in the US, higher employment in other countries, blah blah blah. Now, this led me to think, "Okay, let's go look at some of the devils in the details and such as the Bureau of Labor Statistics employment report." See, the ISM reports are always nice because they're a private survey on what's going on, sort of like the ADP data, it's a private reading of what's going on in the labor market.
But the Bureau of Labor Statistics is obviously led by the Trump administration. Uh the Trump administration did not like the data that the Bureau of Labor Statistics was pulling off last summer. So, we ended up firing the head of the Bureau of Labor Statistics because our uh führer, I mean our our leader uh Donald Trump says, "Well, either they're being political or they just suck at their jobs." Both of those are wrong, so let's just fire the person.
So, it turns out that we got this magical increase of 178,000 jobs in March and the unemployment rate changed very little. Now, that magical increase was made up by 76,000 jobs from healthcare, and we had some up or down revisions for January and Feb as well, though those mostly net each other out. So, on sort of a headline basis, the information actually looks pretty good.
Which we expected the numbers to be positive after that terrible February for March, but this was also very positive. The 3-month moving average for job gains has now moved to 68.3,000. We were at 22.5 on the 6-month average, which means we're going at we're now growing at 3x the 6-month average. But, wait a minute.
Is that all there is to see, or is there something else going on here? Well, of course there's something else going on. So, if you go down to the households data over here, you could find that the household survey indicates that jobs fell by 64,000. But, we know that the household survey is always pretty volatile, and so we generally don't pay so much attention uh to the household survey on a monthly basis because it's, you know, six of one, half dozen the other.
One month the payrolls data's up and the households down and vice versa. They just sort of bob and weave around, almost like sine waves in your house, you know, 120 V and 120 V. They're not perfectly overlapping, they're sort of like spaced out by one synchronous beat. Uh so, you kind of get this what looks like a very crazy uh sine wave.
Anyway, that that's too complicated. The point is these these numbers usually aren't what are super useful and what I like to pay attention to. Instead, what I noticed was right here. We have decided that people not in the labor force, as in people that we just don't think uh, are actually looking for a job anymore or haven't looked for a job in the last 4 weeks and even though they're unemployed and even though they want a job, we're just going to take half a million people, 488,000 people, and we're just going to dump them into the bucket and say, "You know what?
They might be unemployed, but we're not going to count them as unemployed. We're just going to throw them into this bucket called not in the labor force." Imagine if for a moment 178,000 positive was adjusted down by 488. In other words, all of those 488,000 people, the Bureau of Labor Statistics just magically decided, "Oh, they're not in the labor market anymore." Let's just say we actually counted them as unemployed this last month.
Our labor report would be that. Right here. It's so disappointing I don't even want to say it. Negative 310,000. If we just pick the people we decided just aren't in the labor market anymore. Oh. No problem. Not rigging the data at all. Tickle me pink the government rigging the data. Come on, Kevin.
You of all people should know. Well, yeah. Well, let's just put it this way. They're not even hiding it. They're kind of showing us there's still major underlying problems. Take for example, like, you know, it'd be one thing if they weren't even leaving nuggets for us. They're leaving the nuggets because they know most people are headline driven.
99% of people aren't going to look at the details. And that 1% of people that are looking at the details are going, "Aha!" And then the people at the Bureau of Labor Statistics are going, "See, we told you. It It right here under the hood. Guess you weren't paying attention. The other thing that's sus baka here is the labor force participation rate.
So, remember in January, the original labor force participation rate in January was the same as the March rate at 62.5. But then what they did in February is they said, "Oh, the labor for force participation rate fell to 62." And then they said, "That's a little changed from January 62.1." And I'm like, "What do you mean?
It was 62.5." They quietly revised January down from 62.5, which is where we were last March, down to 62.1, and then said it was little changed, and then it fell even more to 61.9. Now, why does that number matter? You might I care about the labor force participation rate, Kevin. You just graph it at just Well, let me show you by using an example village.
All right, here's a village. We know a little bit about villages we have seven children, and as they say it takes a village. But anyway, the village in January had a total population of 100 human beings. There are 60 people who actually work, which means you have, you know, 40 people who are children, elderly, disabled, I don't know, not in the workforce, okay?
This means we have a labor force participation rate of 60 over 100 or 60%. Wow. Now, let's say we have three people who are unemployed. We are now going to divide that three number into 60, and we will get an unemployment rate of five percent even. Now, that village in February had two people who are unemployed.
They're still a worker, they're just not employed, right? Over here you had 57 people who were working and participating in the labor market, three of them didn't have a job. And that's how you get to a 5% unemployment rate. Three into 60, right? Not into the whole population, just into the people who would actually be working.
Well, now we have two more people who are unemployed. That unemployed level of five out of 60 who wanted job just raised the unemployment rate to 8.3%. Oh my gosh, we're going into a recession. No, but wait. We don't want to get fired at the Bureau of Village Statistics. So, we are going to just remove these people from the labor force.
So, if we go over here to Village February with participation down and we just say that two of those five unemployed people have left the labor force and the participation rate has declined to 58% because those people those two people they just don't matter. We're just going to remove them from the labor force.
Well, then our unemployment rate is quote-unquote little changed at 5.17%. Exactly or I mean nearly exactly what we had in January at 5%. Basically no difference. Rounds to 5%. Yay, good job support. It's silliness. The for for the participation rate going down is a real risk factor. And the fact that we're shifting people who are losing their jobs into a not in the labor force because we're calling them marginally attached or discouraged or whatever else is a hidden red flag.
Now, does that mean go run away and sell everything like a little bear weenie baby? No, it doesn't. But, it is something that we have to start paying attention to. More so than I think markets have been. Now, Mary Daly over at the Federal Reserve does give us a little bit of color into why some of these things could actually be occurring.
Now, I think Mary Daly, and I'll pull it up over here, uh has some good arguments. First, she argues that back in the 1970s, one of the reasons why we saw the labor force actually grow so much more than we see it grow now, is because back in the '70s, you had women actually meaningfully enter the workforce, you had baby boomers become of working age, and you had a lot of immigration.
So, you had a labor force that was really growing. Today, it's not like you have a new resurgence of women entering the labor force or baby boomers. If anything, we've got falling birth rates and substantially less immigration, leading, of course, to this declining break-even growth estimate for the labor market, which has been declining since its peak in mid-2023, but it really fell off a cliff over here once we got immigration policy, and at one point, the median point for that break-even estimate actually fell to negative.
Now, Mary Daly acknowledges that it's really hard to explain to people why a labor market growing at zero could potentially be consistent with a strong economy, and that this is not a recessionary warning. And one of the reasons she has a hard time explaining this is because it leaves very little room for error.
A little bit of an increase in layoffs, and we can't absorb those jobs in such a slow-moving labor market, we fall into recession. So, the potential for volatility is really massive when you're treading along zero. Could she be right in the short term that we might still be okay? Absolutely. We're still seeing quits levels stable.
Layoffs levels stable. The jolts job openings levels also pretty stable. Now she does in fairness warn that some of the productivity gains that are going to contribute to GDP are useful that's not going to last forever. As she puts it absent actual labor market growth, our economy will grow slower. An economy that grows slower means earnings grow slower, which means margin likely compresses more at businesses, which induces the desire for layoffs in the first place.
So in other words, as our break even level is around this level, it might be okay for now, and it might justify why we're not going to have rate cuts this year for now. But unless this actually starts growing, unless we actually start seeing participation rise, we're probably not looking at a very good GDP over the next few years, and we might actually just be a zombie that's walking into recession.
These real fears began around the triggering of that well, the failed triggering of the SAHM rule in August of 2024. That scare has been going on for a year and a half. It's mostly because, you know, we haven't really seen meaningful layoffs. We uh have seen layoffs, but we keep absorbing those into the labor market.
So so far we haven't fallen off the cliff yet. Uh and we haven't really had a sharp stock market crash. You know, sure we just had a little Nasdaq 100 correction, but we haven't had a shop stock sharp stock market crash. Here, let's get rid of some of these lines for a moment just so we can see this more visually.
We haven't really had a a sharp crash uh for quite a while. I mean, we had a liberation day correction, but we didn't have 9 months of pain since 2022 over here. And so, overall, the stock market has really propped up businesses. Problem is once businesses see their stocks go down and margins compress, that's typically when layoffs become a very rapid tool.
Now, Nick Timiraos and and that's a longer-term red flag. Nick Timiraos, over the Wall Street Journal, he also sees some problems with this labor market report. So, it's not just me. He actually sees that average hourly average hours worked per week has fallen substantially over this last year. And the problem with that is it means earnings are going down.
When earnings are going down for human beings, they have less to spend, especially since the bottom 60% of earners keep spending as long as they have a job. So, falling average hourly earnings are a precursor to layoffs. The stock market going down is a precursor to layoffs. Labor force participation declining and the BLS just telling us that people are no longer in the labor force is probably a precursor to just a bad labor market, which we probably already in.
They're just sort of like monkey see no evil and covering it up a little bit by saying, "Ah, well, you know, those people don't really matter anyway. I mean, we saw what we did with the village. We just moved them into a different line item. And then and then we don't divide by the the inclusion of that number and then we're fine.
The unemployment rate doesn't change much." Now, US male. So, this is not female, male. People with a ding-dong. Male participation already lags. Okay? So, if we compare to the United Kingdom, the European Union, and Canada, we have fewer men as a percentage in the workforce for some reason. Something is wrong.
And this is a trend that's really exacerbated since 2008. And so maybe it's the inequalities generated by either greed or capitalism or a combination of those or what. Uh but we have had lower participation in the US. Now this does create an opportunity because maybe we could actually see through artificial intelligence male participation increase which would be good and could get us back to growth.
And so this is where as a bottom line, yes there are absolutely red flags in that data despite the fact that the headline information made it seem like wow, this is the greatest labor report I've seen since Biden. Since Joe Biden. We actually look under the covers. It ain't that good. &.
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