Companies are trimming fat, data is frozen, and Powell is guessing. Welcome to blind economics.
KEY TAKEAWAYS
Labor market weakening, layoffs increasing, hiring stalling
Government shutdown halts data, forcing reliance on ADP and state claims
Fed uncertain, alternating between dovish and hawkish statements
Rising long yields suggest markets fear delayed policy response
“Blind economics” as metaphor for policy paralysis and market risk
MY HOT TAKES
The Fed is guessing, not guiding
Employment cracks are the real recession signal
Corporate layoffs are the easiest cost control lever
Shutdown-induced data blackout magnifies volatility
Markets can’t price risk when policymakers can’t see it
You can quote me: “The honeymoon is over for lazy workers–the axe is back.”
Blind economics. Well, isn’t the US just full of surprises? No, I am not going to break my roll about politics: policy not politics. Yes, there are some interesting political developments from yesterday’s elections, but as there are no policies associated with them as yet, you are just going to have to hold your horses for now. Just calm down. I will just briefly say that whatever policies may be forthcoming, they are likely going to have to factor in what might be a decay in the strength of the labor market. So, if you were just elected last night, put down your champagne and your Leadership for Dummies book, and pay attention. Companies are no longer afraid to lay off workers! Read that again… go on.
It was really hard for companies to hire during and immediately after the pandemic. This left HR departments vexed with how to keep workers. Initially showering them with high salaries–which by the way contributed to inflation. You are going to have to trust me on that one, or you can read A W Phillips seminal paper ( Phillips, A. W. (1958). The Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, 25(100), 283-299.) in which he introduced the now-famous Phillips Curve that shows the inverse relationship between unemployment and wage inflation–low unemployment -> higher wages -> inflation (I added that late relationship, because we know that companies pass cost increases on to consumers).
Let’s get back on track. So, employers struggled and paid up for new hires which became the norm–for the moment. If you were paying attention, you would have noticed that companies slowly began to pull perks like work-from-home full-time as the pandemic got smaller in the rearview mirror. It became 3 days, then 2, and 1 seems to be the new normal. This was not for health reasons; it was a representation of companies regaining the upper hand on workers attempting to increase productivity. That is, after all, what companies are supposed to do. 😉 But here we are today, and companies are under pressure to maintain earnings growth in an increasingly challenging economic environment. In this environment, if companies are not experiencing compressed margins from tariffs, they are concerned about global trade and the ever-present possibility that they will at some point be hit with a tariff or an embargo.
Rational companies look to the easiest variable cost to control, and that, my friends, is unfortunately, the labor force. With firing freezes no longer an option, companies are likely to trim back workforces in order to maintain margins or possibly INCREASE margins. In other words, the honeymoon is over for useless, lazy, under-performing workers. The axe is back.🪓
Don’t believe me? Check out this chart of the unemployment rate.
Now, unfortunately, with the government shutdown, that 4.3% last reading was from back in August, but you can at least see the increasing trend. Hold that thought for now. Ok, now I am going to show you another chart. This one is Nonfarm payrolls. Have a look and keep reading.
This chart of New Nonfarm Payroll additions is also a bit outdated because of the shutdown, but you can certainly see the declining trend in new hires. 👀 So, let’s think practically for a moment. Companies don’t usually go from hiring to firing. They first slow hiring, then they stop hiring, and ultimately, they lay off workers. On the chart above you can almost see that transition, as new hires slows and slows and ultimately went negative in June, which is job losses. The last print from August shows a dangerously low 22k new jobs. Remember one of my favorite quotes: “confident consumers consume.” Well, there is another more practical cousin of that which reads: “employed consumers consume.” Yep, and when they don’t, you know what happens next. Check out this next chart, if you are unsure.
That’s right, declines in hiring precede recessions. You can see clearly by this chart how hiring trended down just prior to recessions (shaded in red). I stopped this chart just before the pandemic, because the scale of the fires and hires obscured the chart.
Ok, now, have we established why it is important to look closely at labor data? I hope so. We have also established that the labor market is definitely slowing… at least through August, based on official Government data. In this data blackout caused by the shutdown, we would typically get weekly jobless claim data and monthly labor situation data to give us a good reading of the pulse of the labor market, but alas, that has not been forthcoming for some time. We, therefore, have to rely on anecdotal and private data sources.
As far as anecdotal data, we have recently heard of some high-profile layoffs from companies like UPS, Target, Amazon, Meta, and… wait for it… the Government. In yesterday’s blogpost/newsletter, I highlighted anecdotal and survey data from ISM which supports this assertion. Check it out here if you missed it.
That brings us to what is the closest private data source for tracking the labor force, ADP, which we will get this morning. Leading up to this morning, we had two negative prints in a row through last month. Check out this chart then keep reading.
You can see by this Bloomberg ECAN chart that the trend for new hires (white line) is clearly declining. Economists are expecting October’s print to come in with a 30k gain in jobs. Regardless, unless there is a significantly large jump, the trend is still clear, and it’s not positive. Now, it is important to note that the ADP number rarely agrees with the official Bureau of Labor Statistics (BLS) number. Though that may be the case on a monthly basis, the trends often do sync up, so a declining trend in ADP is likely to mean a declining trend in the BLS. If you notice on the longer-term Nonfarm Payrolls chart above, those declining trends rarely reverse. Just saying.
It may not be all doom and gloom. Remember I mentioned the weekly initial jobless claims numbers? Well, we may not be getting them from the Federal Government, but thanks to State DOL folks 😉, we can get state level unemployment claims. Take a quick look at this chart then follow me to the finish.
OK, don’t get stuck on this chart–it’s a busy one. I plotted State-level initial jobless claims from California, New York, Florida, Texas, and Illinois alongside the country-wide metric (blue dotted line). You can see how the country-wide line abruptly ends with the shutdown. Let’s see if we can spot any trends of these states which I plotted. Ignore the actual numbers, just look for trends. I can see a shallow decline year to date, however, in the weeks since the shutdown, the shorter-term trend seems more sideways to slightly higher. If you want to be optimistic, you can deduce that the labor market may have bottomed in late summer and may be limping, but still walking.
If you want to be realistic, you might notice that employment is lagging nearly every other macro indicator right now. Corporate profits, capital expenditures, durable goods orders, consumer confidence–all have been softening for months. Employment was the last man standing. Now, even that foundation is starting to wobble. When you combine that with shrinking real disposable income and a Federal Reserve that can’t seem to make up its mind, you get the makings of an economy running on fumes. That is what makes this morning’s ADP number so important. It’s not just about one month’s jobs print, it’s about whether the “soft landing” narrative still holds when the landing gear starts to creak.
Markets are jittery for a reason. We’ve now seen consumer sentiment roll over, corporate earnings guidance cut, and retail sales flatten. It doesn’t take a doctorate in finance (😉) to see what happens next if jobs start disappearing. Remember, 70% of GDP is consumption. If consumers start tightening belts–either because they fear losing their jobs or because they already have–the slowdown becomes self-reinforcing. The same way confidence fuels expansion, fear fuels contraction. That’s why, even though the Fed keeps hinting it can “wait for more data,” it may not have that luxury for too much longer.
And that’s the punchline here: the Fed is flying blind too. Without BLS data, Powell and company are relying on ADP, ISM, and state claims just like the rest of us. Imagine trying to steer a 26-trillion-dollar economy with one eye closed. The Fed’s public messaging has reflected this uncertainty. One week a rate cut is “on the table,” the next it’s “premature.” Flip-flopping isn’t a strategy, it’s a symptom of policy paralysis. You can’t calibrate monetary policy when your dashboard has gone dark.
Meanwhile, the bond market has been quietly rewriting the script. Long yields have started to rise again, reflecting fears that the Fed will cut too late, not too soon. The yield curve leading up to this year was inverted for longer than at any point since the early 1980s, and that’s never been good news. The longer the Fed waits, the steeper the landing. History is clear on this: every modern recession has been preceded by labor softening first, then policy response second. Powell knows that, but without timely data, he’s guessing like everyone else.
So here we are, an economy on tenterhooks, watching a private payroll report like it’s gospel. Markets will likely overreact to today’s print, whichever way it lands, because uncertainty magnifies everything. If it’s weak, futures will cheer on rate-cut hopes. If it’s strong, the inflation hawks will roar back to life. Either way, one number shouldn’t carry this much weight, but in the absence of federal data, it does. This is why I’ve been calling it blind economics. It’s like driving at night through a fog bank, headlights dim, and the GPS frozen. You don’t know whether the next turn is a soft curve or a cliff!
Let me put it plainly: these labor numbers are not just “important,” they are the entire story. Employment is the connective tissue between corporate profits, inflation, and consumer demand. Lose that, and everything else unravels. The Fed may still pretend it’s “data dependent,” but right now, the data has left the building.
In times like this, we start to appreciate the boring regularity of government reports. You miss the routine–the first Friday payroll print, the mid-month CPI, the weekly claims. Without them, the market fills the silence with fear and speculation. We start arguing over private survey methodology instead of fundamentals. It’s chaos disguised as analysis.
Now, if you zoom out just a bit, there’s a broader story unfolding here. A country that built the world’s most transparent, timely, and data-rich economy is suddenly stuck waiting on scraps. Investors, policymakers, and businesses are all reading tea leaves. The irony is that the very government shutdown meant to “save taxpayer money” is costing the country far more in uncertainty. Every day that goes by without new data widens the gap between reality and perception.
So yes, today’s ADP number matters. It’s the only clean pulse check we have left, however imperfect. It’s the candle in the cave. But even as we watch it, remember what it really represents: a proxy for real people, real jobs, and real decisions being made in boardrooms and living rooms alike. A slowing labor market means something human. Less security, less spending, more anxiety. That’s what policy is supposed to guard against. And right now, the policymakers are the ones fumbling for a flashlight.
By the way, the record I was talking about at the top–the government shutdown–is now officially in the history books. It just became the longest in U.S. history. Congratulations, America, we’ve broken yet another record no one wanted. Maybe by the end of the week we’ll get a new one: “Longest period without fresh labor data.” Somehow, I doubt the markets will be as patient as the politicians.
YESTERDAY’S MARKEST
Stocks fell yesterday led by high-beta megacap techs after Morgan Stanley and Goldman Sachs chiefs decided to warn us that tech is expensive. Thanks for that blinding glimpse of the obvious, gents! 😉 The Big Short guy is back at it with–not shorts but–puts on high performing AI stocks, which didn’t help–he was right back in 2008, according to the movie. Nothing ventured nothing gained Mr. Burry.
NEXT UP
ADP Employment Change (October) came in at 42k slightly higher than the expected 30k and higher than last month’s revised-up -29k.
ISM Services Index (October) is expected to tick up slightly to 50.8 from 50.0.
Important earnings today: Trump Media, Liberty Media, McDonald’s, Owens Corning, Humana, Emerson Electric, Johnson Controls, Lyft, Figma, IonQ, Albemarle, McKesson, AppLovin, Robinhood, Fortinet, Energy Transfer LP, Duolingo, Snap, DoorDash, Lucid, QUALCOMM, Dutch Bros, elf Beauty, and HubSpot.