Jobs Data, We Have a Problem!

There’s a problem with the government reports of strong jobs growth.

The other day I showed you the September Federal Withholding Tax Data that said there’s very little jobs growth.

“Withholding tax collections declined 0.8% year to year as of October 5.

This was better than a 1.8% year to year decline one month prior and the same as the 0.8% decline 90 days before.”

Now, on my chart of the withholding tax trend we can see that the short term trend has strengthened slightly since August. But it’s not materially better than in July, and is weaker than in May.

The Bureau of Labor Statistics reports that average weekly earnings skyrocketed by 5% year over year in September.

That would mean that the even current faint hint of improvement in withholding collections over the past 2 months, is entirely due to inflation, not job gains!

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Let’s assume that the 5% print is too high. Since the tax cut, all months have shown a gain of 3% or more. In fact, the 12 month moving average of the year to year gain is now above 3%. The recent monthly gains of 3% or more are no fluke. Inflation is heating up!

You may be wondering also about average hourly earnings. The purpose of this data for us is to adjust for that part of the gain in withholding due to pay increases, regardless of source. Yes, some of the increase in weekly earnings came from an increase in average hours worked. But average hourly earnings are also surging, up 3.3% in September for production and nonsupervisory workers.

Adjusted for wage and salary inflation at a conservative rate of 3%, real tax withholding declined by 3.8% year to year last month! That’s a head scratcher. August withholding was only down 2.5%, adjusted for inflation. So, in real terms, September was weaker than August. That suggests fewer jobs, not more as reported in the nonfarm payrolls data for September.

Given the imprecision in the wage inflation measure, I’d hesitate to jump to the conclusion that the job market is weakening.

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But it’s also likely that it’s nowhere near as strong as the government is reporting. The Fed believes the headline data, though. It will continue to tighten into an economy that in fact may be weakening. That will lead to Janet Yellen’s “material adverse event.”

It’s good reason to be very patient indeed about getting back into the market until that event actually occurs. Stay in cash, and buy short term SPY puts on rallies. I’ll post specific timing suggestions right here in Sure Money from time to time!


Lee Adler

One Response to “Jobs Data, We Have a Problem!”

  1. This is great info and is what many suspected – job growth is really Job Flat. Of course it is better then going negative. BUT it is the type of jobs that are being added. America can not be “great” if all we are adding is $10 & $12 / hr jobs. And what will happen when AI robotics is fully deployed??

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