Help wanted, but none to be had

Stocks had a mixed close yesterday on a day of mixed macro data. Manufacturing is languishing and OPEC+ cut daily production crude oil.

I don’t know, Junior. There are lots of opinions floating around in the media these days. Plenty of them are not even credible, but many are, and the jury is still out on whether the US is headed for a recession. I want to share 3 charts today to help you fill in some of the gaps you may have in your view of the economy.

Let’s start with yesterday’s ISM Manufacturing, which came in below economists’ estimates at 46.3 after posting a 47.7 in the prior month. Yes, it was a miss, and yes it was lower than the prior month, but it is important to recognize that the number is below 50, which indicates a contraction in manufacturing. Now, I know that you probably think that manufacturing is no big deal to the US economy, but you would be incorrect in that assumption. Here comes chart number 1 which shows yesterday’s ISM Manufacturing number going back to 1978. You will notice that the PMI fell below 50 prior to 5 of the 6 recessions (shaded in red) during that period of time. You will also note that in only 1 case, the PMI fell to yesterday’s reported level which was not followed by a recession (in late 1995). Would you be surprised if I told you that the Fed was aggressively hiking interest rates during that period? The good news was but for one +25 basis point hike in 1997, the Fed would lower rates through the summer of 1999. Check out the chart then keep reading.

Today, we will get JOLTS Job Openings from the Bureau of Labor Statistics. Prior to the pandemic this monthly statistic was not broadly covered. Don’t get me wrong, economists and yours truly certainly looked at it, but it was not historically a market mover. What makes the number more popular these days is that the Fed has linked the labor market to inflation and ultimately its rate hiking behavior. The tight labor market implies that companies are having to pay up for labor, which is a driver of inflation… so the theory goes. According to the latest read of US Unemployed workers, there are 5.936 million Americans currently unemployed. That is right around the same number prior to the pandemic, but significantly lower than the number of unemployed in 2020 and 2021. That makes sense given the pandemic. Check out this chart of unemployed US workers then read on.

So, is the labor market really that tight? Ok, so there are less workers looking for jobs, but today’s level is roughly the same as it was in the 2 years prior to pandemic, when inflation was much lower. That, my friends, is where JOLTS Job Openings come in. We are hearing an awful lot of noise about companies laying off workers and how it will ultimately cause a recession. Those job losses should give cold comfort to the Fed which would like to see the labor market loosen up a bit. Here is the problem. If economists are correct and JOLTS Job Openings come in at 10.5 million, that would mean that there are 1.8 job openings for each unemployed American. With so much opportunity, workers are likely to hold out for good offers, implying that wages still have some room on the upside. In order to appreciate the magnitude that 1.8, you have to check out the following chart of JOLTS going back to 2000. You will note that we are just below the record high… even after all the recent wave of layoffs. That would hardly seem like conditions for a recession, but they are certainly conditions for continued inflation and more Fed tightening. But, given the first chart I showed you… well, now you know why the markets are so volatile these days.

WHAT’S SHAKIN’ THIS MORNIN’

Prudential Financial (PRU) shares are higher by +11.97% in the premarket after JPMorgan Chase raised its rating to OVERWEIGHT and raised its 12-month price target to $114 (the stock closed at $82.43 yesterday). Of the 18 analysts that cover the stock, only 16.7% rate the company a BUY, while 55.6% rate it a HOLD, and 27.8% of them rate the company a SELL. Dividend yield: 6.06%. Potential average analyst target upside: +21.0%.

The Boeing Co (BA) shares are lower by -0.90% in the premarket after getting downgraded to SELL by Northcoast Research. The company lowered its price target by -16% to $180 citing macro headwinds which will prevent the company from delivering its targeted volume. Potential average analyst target upside: +6.7%.

YESTERDAY’S MARKETS

Stocks had a bumpy day yesterday, ultimately closing mixed, as investors tried to interpret the inflation implications of lower crude oil production and a big miss in US Manufacturing. The S&P500 rose by +0.37%, the Dow Jones Industrial Average climbed by +0.98%, the Nasdaq Composite Index lost -0.27%, and the Russell 2000 slipped by -0.01%. Bonds gained and 10-year Treasury Note yields declined by -5 basis points to 3.41%. Cryptos inched lower by -0.74% and Bitcoin gave up -1.74%.

NEXT UP

• JOLTS Job Openings (Feb) is expected to show 19.5 million vacancies, slightly lower than last month’s reading of 10.824 million.
• Factory Orders (Feb) may have slipped by -0.5% after declining by -1.6% in January.
• Durable Goods Orders (Feb) is expected to have been flat for the month, in line with prior estimates.
• Fed speakers today: Cook, Collins, and Mester.