April 8, 2023 | Jobs Report, Labor Market and Mutual Fund Managers

Jobs Report
Given the concerns around the economy, I'd say the jobs report was a positive one. It wasn't too hot which would've provided evidence for the Fed to increase rates more than anticipated, but it also wasn't too far below expectations and overall, it showed a softening labor market not a bad labor market. Headline payrolls grew by 236,000 compared to the estimate of 238,000, but the big highlight came from the average hourly earnings which increased just 4.2% on an annual basis and was the smallest increase since June 2021. For most of 2022 the annual gains were over 5% with March being the peak at 5.9%. This is more evidence that inflation is becoming a much smaller problem. Also, another highlight was the labor force participation rate again ticked higher to 62.6% which was the highest level since pre-covid levels. For comparison, in February 2020 the labor force participation rate was 63.3%. Areas that led the way in job gains were leisure & hospitality at 72,000, healthcare and social assistance at 50,800, and the Government at 47,000. Leisure & hospitality still remains 2.2% or 368,000 jobs below pre-covid levels and Government employment is still lower by 314,000 jobs, or 1.4 percent. There were 4 declining groups in the report as retail trade was down 14,600, construction was down 9,000, and manufacturing and financial activities were both down 1,000 jobs.

 

Labor Market
The Job Openings and Labor Turnover Survey showed that job openings in February came in at 9.93 million. This was a fall of 632,000 job openings when compared to the month of January and it missed the estimate of 10.4 million openings. This was the first time since May 2021 that job openings fell below 10 million and while this may sound concerning, there are still about 1.7 jobs available for every available worker. Also, if we look back to January 2016-February 2020, the job openings ranged from 5.59 million - 7.59 million. Layoffs were also positive as they declined 215,000 from January to a level of 1.5 million. If we again look at January 2016-February 2020, layoffs ranged from 1.59 million - 1.97 million. Overall, I'd say this is a softening labor market but by no means is it a weak labor market.

 

Mutual Fund Managers
I knew there were a lot of mutual funds out there, but I was shocked to see how few managers actually participate in their fund. According to Morningstar, some 4,643 out of a total of 7,108 funds have zero manager investment. I think this is just crazy and as much as people talk about different objectives and risk tolerance, I have always been a big believer that a good investment for me should be a good investment for my clients. Ultimately, I believe that everyone shares the same main objective when it comes to investing and that is to make money. This is why I invest in the same companies as my clients when we manage money.

 

Fact Checkers
I continue to worry about people's overreliance on the internet/technology and even more so the so-called independent fact checkers. We recently did a post on the JOLTs report, and it was flagged for false information. When clicking on the reason for the false information, Facebook indicated it flagged the post because there is no record of Martin Luther King Jr saying, “Our lives begin to end the day we become silent about things that matter.” This was according to AAP FactCheck. Our post did not contain that quote or mention Martin Luther King. As a society, I believe we need to really emphasize critical thinking and doing more than just surface level research that relies on algorithms.

 

Tik Tok Statistics
The numbers are staggering when it comes to TikTok. It is estimated that about 95 million Americans use TikTok for about 90 minutes a day. It is estimated the company will generate about $14.2 billion in revenue which is an increase of 43% compared to 2022 and 10 times what it was just three years ago. The biggest users of TikTok are coming from Generation Z who were born from 1997 to 2012. What is concerning is that these 11- to 26-year-olds could be having their minds and ideals twisted in ways that no one could foresee. It was also pointed out about 26% of adults under age 30 are getting their news from TikTok on a regular basis which is up dramatically from 9% back in 2020. At first thought, I’m a hard liner that we ban TikTok because of the backing from the Chinese government and what it could be doing to the young minds of our country. Then there’s the other side of the coin if we do ban TikTok did we just throw out our freedom of speech? Also, there could be repercussions for American companies operating in China, who generate billions of dollars benefiting US businesses and shareholders. One thing is for certain, this will not be resolved for years to come and there’s no doubt in my mind that it will not be resolved before the presidential election in 2024, because if it were banned now, politicians would lose many Gen Z voters.

 

ISM Services
There has been some concern about economic data this week, but I believe this is exactly what we need for a healthy economy. Looking at the ISM Services PMI it registered 51.2 which was 3.9 percentage points below February's reading of 55.1. The reason this is important is because the economy is slowing, but a reading above 50 still indicates expansion. One of the most important components of the report was the Price index. It registered 59.5 which was 6.1 percentage points below the 65.6 recorded in February. It marked the 70th consecutive month of price increases, but it was the index's lowest reading since July 2020. This also marked a ninth consecutive reading near or below 70 which follows 10 straight months of readings near or above 80. I continue to believe that we can get a soft landing, or a small recession paired with a reduction in the massive inflation we have been seeing.

 

In the Office
There is more evidence that people are coming back to the office. One was a recent survey where it says 72% of business employees are now in the office full-time or work at home very little. In 2021 the same survey showed 60.1% were coming into the office. My own personal observation agrees with the survey as I have noticed when I call different businesses, I hear fewer barking dogs in the background or kids running around screaming.

 

Money Movement
The Silicon Valley Bank failure caused movements of dollars that has never been seen before. This is mostly because of the ease of transferring money from one institution to another. Banks below the top 25 banks experienced withdrawals of $108 billion, which is an all-time record.

 

OPEC and Oil Prices
In a surprise move OPEC cut their production which caused a big rally in oil prices today. It appears the Biden administration missed an opportunity to buy back oil for the Strategic Petroleum Reserve which would’ve helped to stabilize oil at a higher price. Since the administration did not do that OPEC took it upon themselves to cut production to support oil prices. Oil rose 6% today crossing the $80 per barrel level.

 

Wells Notice to Coinbase
The SEC recently issued a “Wells Notice” to Coinbase, which is saying a lawsuit is coming be prepared. What the SEC is saying is that Coinbase is trading tokens as an unregistered security and that they are not tokens but a security. If the SEC wins this suit against Coinbase it will virtually shut down all trading of most tokens in the US (imagine the price of Bitcoin if this happens) because they would have to register with the SEC as brokerages and exchanges, and they would also have to issue the tokens as securities. I do take the side of the SEC on this because more people buy and sell Bitcoin and other cryptocurrencies as a way to make a profit and not use it as a currency for exchange of goods and services. To me, it is the same as penny stocks, which really have no value and trade up and down on a daily basis.

 

Federal Reserve Raising Rates
You may be feeling the pinch on your credit from rising interest rates, but you are not the only one. The Federal Reserve, who is raising rates, is also feeling the pinch. How is that you may ask? The Federal Reserve has over $5 trillion that it has borrowed from financial institutions and money market funds at short term rates. Now that those short-term rates have risen the Fed is now paying 4 to 5% on that $5 trillion. The Federal Reserve makes profits off securities that it owns. In 2021, they made almost $108 billion which they sent to the Treasury. But now because of the amount they are paying on the $5 trillion that they owe, it looks like in 2023 the Treasury will not be receiving any money from the Federal Reserve.