There’s nothing like the unexpected in scriptwriting to make us all keep coming back for more. Take this priceless bit from National Treasure, the 2004 Disney blockbuster starring Nicholas Cage as Benjamin Gates, a self-described treasure protector as opposed to hunter.
Powell: [referring to the underground staircase] How do a bunch of guys with hand tools build all this?
Ben Gates: Same way they built the pyramids – and the Great Wall of China.
Riley Poole: Yeah… the aliens helped them.
It just doesn’t get any better than that. And all in the name of preserving national treasures, which the National Trust for Historic Preservation defines as something that can, “reflect our past while enriching our future.”
According to this definition, our nation’s rich history of innovation and job creation certainly qualifies as a national treasure. The question is, how good of a job are we doing at safeguarding it?
To answer that question, let’s tap into the brilliance of a rock star buy-side economist whose job happens to require him to fly under the radar, as in steer clear of the public eye. He agreed to speak under the cloak of anonymity. But for the sake of having a reference point and in the spirit of the cinematic theme du jour, let’s just call him Dr. Gates.
Like Cage’s on screen character, Dr. Gates endeavors to look for clues others miss, or that can’t necessarily be seen by the naked eye – in this case, the naked eye of many of his peers who tend to look in the rearview mirror.
It is true that the difference between those reporting jobs to be abundant vs. those lamenting they were hard to come by clocked its strongest reading in nine years. And there’s no denying the rebound in the employment index as gauged by the ISM non-manufacturing survey, which represents the vast majority of our services-driven economy.
And yet, that other service sector survey put out by Markit told an entirely different story with the firm’s chief economist relaying that companies had, “reported a reduced appetite to hire and job losses due to weaker inflows of new business and worries about the outlook.”
Maybe some of the anxiety stems from the acute uncertainty surrounding this anything-but-polite political season. And it’s not just the slugfest for the top ticket. There’s no small amount of angst surrounding other kinds of decisions voters are taking into their hands come November 8th. Five states’ voters will head to the polls to determine whether their minimum wage should be lifted.
Judging by what’s happening in the Empire State, where minimum wage legislation was signed into law back in April, the relevance of this issue cannot be ignored. Released earlier this week, the ISM-New York survey’s Employment Index registered its worst reading since the Great Recession. It’s critical to note that the index mostly reflects the job market in the New York City metro area, so we’re talking about labor-intensive jobs here. On that count, NYC’s average paycheck dropped 4.7 percent over last year, the biggest annual decline in at least eight years. Meanwhile, payrolls have declined in three of the last four months. Could this leading state economy be signaling what’s to come?
That’s where Dr. Gates’ genius comes into play. For him, it’s all about the inflection points. It’s not only the NY data that has his attention, but more broadly, small business hiring intentions.
According to the latest from the National Federation of Independent Businesses (NFIB), the unemployment rate is set to rise. This coincides with Federal Reserve Chair Janet Yellen’s recent observation that labor market slack was being absorbed at a, “somewhat slower pace than in previous years.”
It’s not just about NFIB latest report, though, it’s about what the future holds given what small business owners are reporting. For one thing, they’re petrified about the political climate. For the first time since records started in 1993, politics is a greater concern than economics on Main Street. That was as of August, the latest full report we have in hand.
Perhaps that helps explain the one advance component the NFIB does release ahead of the jobs report. To that end, in September, job openings series fell by six points, something that’s only occurred five other times in history, all of which signaled either an upturn in the unemployment rate or worse, the ‘R’ word.
Regardless whether we’re ‘there’ yet, the preponderance of the evidence is screaming, “Late cycle!”
“Look at the jobs market like you would a Boeing 747,” suggests Dr. Gates. “It needs two really, really important things to work well: speed and altitude. Investors have only been conditioned to look at speed, the nonfarm payrolls figure that lights up Vegas once a month. But you can never ignore altitude, the level of employment. Just ask the pilot.”
Dr. Gates’ metaphorical 747 has seven, not four engines. They are durable manufacturing, nondurable manufacturing, construction, wholesale, retail, transportation and warehousing, and temporary employment.
“These magnificent seven are the most important industries on the control panel to gauge altitude,” explains Dr. G. “Why? They’re the most cyclical.”
In the beg to differ category, it’s worth noting that in this cycle in particular, retail could be throwing off a false negative signal. Challenger, Gray & Christmas’ latest layoff report revealed 7,296 job cuts in the retail sector. How so during a time of the year when retailers are expanding their payrolls ahead of the holiday shopping season? That little conundrum promises to be more pronounced in years to come as the secular shift away from bricks & mortar shopping accelerates hollowing out employment in this sector.
Of course, transportation and warehousing are sure to be a major offset as workers labor to deliver all of that online shopping to your front door. But the jury remains out on how this saga plays out in the end.
Looking even further into the future, Gates cannot bring himself to dismiss the Conference Board’s Online Help Wanted advertisements. Unlike the Fed, which has publicly dismissed the data, Gates pays close attention to the propensity for employers to repost job openings. On that front, all of the renewed weakness in September’s help wanted ads was due to a collapse in repostings.
All in, help wanted peaked last November and has fallen by 15 percent since then. This, by the way, validates hiring intentions, as measured by the Jobs Openings data, peaking in February and trending five percent off their highs. Help Wanted is an appreciably more timely series.
Speaking of five percent, that is exactly where the unemployment landed in September, up from a low mark of 4.7 percent in May. For now, the increase in the rate remains on the good news side of the ledger. The rise reflects 90,000 more folks joining the ranks of the unemployed, hence the uptick in the labor force participation rate to 62.9 percent, which still remains at the lowest level since the late 1970s. More than anything else, Yellen wants many more millions of these discouraged workers to re-join those actively seeking employment as opposed to remaining on the sidelines as eight million still do.
The best news in the report were signs of relief for workers in their prime earnings years, between the ages of 25 and 54. Less uplifting was the fact that jobs for those 24 and younger continued to fall. Set aside the deterrent of minimum wages; it can’t help that participation among workers over the age of 65 refuses to come off its highs.
If our historically robust job market is to retain its national treasure status, it might be high time for the next batch of Beltway occupants to make it easier, not harder, to create jobs in this country. Ask any seasoned pilot of Gates’ 747 and they’re apt to tell you they’ve been losing altitude for far too long.