Shifts in NFIB hiring plans signal rising unemployment; recent job revisions and full-time declines forecast recession.

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Shifts in NFIB small business hiring plans often serve as early warning signs for upcoming changes in the U.S. unemployment rate, yet the job market’s strength seems to exist only in media headlines. On Friday, the BLS will release May’s non-farm payrolls. In April, the U.S. economy added 175,000 jobs, following more than 250,000 jobs each month in Q1 2024. However, the unemployment rate in April edged up slightly to 3.9% from 3.8% in March, missing estimates of 3.8%.

Average hourly earnings also fell short of projections by 0.1% both year-over-year and month-over-month, indicating cooling wage pressure. Additionally, the BLS revisions for Q1 revealed a net loss of 124,000 jobs: January saw a reduction of 97,000, February lost 39,000, and March had a slight gain of 12,000 pending further revision. This means that, excluding March, 13 of the last 14 months have seen downward job revisions. When excluding government vacancies, 11 out of 12 months in 2023 were revised lower, the most revisions since the 2008 financial crisis.

April saw a drop in full-time jobs by 600,000 year-over-year, while part-time employment surged by 1.1 million, marking a 3.9% increase year-over-year. Overall, full-time jobs have declined for three straight months. Worse still, the U.S. economy actually lost 192,000 jobs in Q3 2023, a decline typically seen only during recessions over the past 30 years.

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The ISM Manufacturing PMI has been in contraction for 18 of the last 19 months, a trend last observed from 2000-2002. An article from Barron’s sums it up: fewer job openings combined with lower GDP estimates spell trouble for the economy. If growth and inflation slow just enough for the Fed to start cutting rates without severely impacting company earnings, then the soft landing fairy tale might come true, allowing stocks to rise.

In essence, both the bull case and the bear case hinge on this fairy tale ending, but the outcomes differ dramatically. The market stands on a precarious edge, hoping for a favorable twist in the economic narrative.

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