DiMartino Booth, Wendys 5.15.18

Something’s Amiss in the U.S. Jobs Market

The pace of employment cuts in the service sector is accelerating.

It’s difficult to discern given the incessant headlines lamenting the dearth of skilled workers, but something is amiss in the powerhouse U.S. services sector, which accounts for some 80 percent of the economy.

The headline figures say very little. The Institute for Supply Management’s April survey of non-manufacturing industries showed that activity slowed for a third consecutive month, dropping its index to the lowest since December. Still, at 56.8 the index is materially higher than the 50 mark that is the dividing line between expansion and contraction. Moreover, all 18 industries surveyed by ISM saw growth last month.

By the looks of things, the service sector is in fine shape. As the ISM itself said, “Overall the respondents remain positive about business conditions.” But there was this caveat: “The respondents have expressed concern regarding the uncertainty about tariffs and the effect on the cost of goods.”

The April jobs report from the ADP Research Institute was noteworthy in that the services sector created the fewest jobs since November. And the U.S. nonfarm payrolls data show service sector job growth has averaged just 135,000 over the past six months, a marked slowdown from 2016’s monthly average of 170,000. As for what the future holds, take a look at the Challenger, Gray & Christmas monthly survey data. It showed that in the first four months of this year, employers announced 176,460 job cuts, an 8.4 percent increase from the 162,803 reported in the same period of 2017.

It would be easy enough to assign all of the blame to the retail sector. There is ample evidence that the bloodshed in this sector continues. Some 64,370 job cuts have been announced this year thus far, a 28 percent jump over 2017. According to Challenger’s tracking, 2,460 retail stores have closed this year on top of the 9,241 that shuttered in 2017. But the story is broader than one sector. Health Care/Products job cuts total 17,450 this year, up from 11,269 over the same period last year. It’s key to note that the trend in this sector has accelerated in recent months. Meanwhile, the service sector announced 14,665 cuts, up from 8,263 last year.

John Challenger, the firm’s chief executive officer, has been a flag bearer of the positive labor market trends in the current recovery, so it was notable that he warned “an increase in large-scale job cut announcements could be on the horizon.”

Challenger has been at the helm of his firm for two decades, so it likely hasn’t been lost on him that the past six months have seen $1.53 trillion in announced mergers and acquisitions, which would make 2018 a record year for deals if they are all completed and top the previous high set in 2015. Challenger has seen this M&A film before and knows how it ends. After deals close, “synergies” are extracted, which is a polite way of saying layoffs happen. While the number of firms in the Challenger survey citing M&A as the reason they cut jobs pales in comparison to closings, M&A as the culprit is nevertheless at a 12-month high.

With M&A as a fresh driver, the jobs bifurcation that’s emerged between the goods-producing and services sector is likely to persist until supply chains have been replenished and the inventory rebuilding concluded. With the threat of tariffs, though, it’s conceivable that the gap widens.

It has always been the case that goods-producing workers collect a fatter paycheck vis-à-vis their services-providing counterparts. The downside, of course, is the secular decline in manufacturing which has decimated the ranks of manufacturing employees. It is still remarkable that average weekly earnings for the goods-producing sector are running at 4.7 percent over last year versus those of the services sector, which are up by only 2.3 percent.

Goods-producing and Service-Providing Sector
Wages No Longer Trending Together

The wage gap would be even more pronounced if not for the record number of hours factory workers are clocking. Service-sector workers have seen the opposite, a veritable flat-lining in their workweek.

Goods-producing workweek soars while Service-Sector
Workweek Flatlines

DiMartino Booth 5.5.goods.services

While no doubt a welcome development for goods-producing workers, there is a real risk that this trend will burn itself out. Second-quarter gross domestic product could well be the peak for the current cycle if there is no follow-through in demand following the panic buying ahead of potential tariff impositions, evidence of which is apparent in the Challenger data. Companies announced plans to hire more than 350,000 employees in the first four months of 2017, far above the 210,000 in actual hires.

More than any other data, the need to hire workers speaks to demand building in the economy’s pipeline, or lack thereof. The message may continue to be lost in the noise, but it’s increasingly likely that the recent weakness in the services sector is anything but an aberration.



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ICYMI.ddb, In Case You Missed It — August 4, 2017

In Case You Missed It — July 28, 2017

Dear friends,

Calling turning points can be a fool’s game. But there is something to be said for the deathly quiet we’ve seen in the jobs market. Jobless claims volatility is at a postwar low even as companies have begun to cite cost cutting as the major driver behind job cut announcements. Is that ‘something’ finally about to give in this recovery that has left so many behind?

I’d love your feedback on my latest Bloomberg Prophets column, linked here:

Bloomberg Prophets — Like Markets, Jobs Are Due for a Jolt
Volatility for labor has reached its lowest in postwar history. What’s next?

I was also in New York ever so briefly as it was the day Fed officials met. Janet Yellen et al took the opportunity of a lame duck meeting to toughen up their language on Quantitative Tightening despite there being np press conference to explain themselves.

Will the Fed begin to shrink its mammoth balance sheet as early as September? Will the opposite of Quantitative Easing have no effect at all on markets? We will all tune in to FedSpeak in the weeks and months to come. The debate will no doubt continue to rage on.

You may be asking why I included a Bill Gross segment. As I was informed shortly after I left the set, CNBC’s Brian Sullivan gave self-deprecation new meaning when he claimed he was not as smart as me. I can assure you after many interviews sitting to his left, Brian is one smart cookie and a might bit smarter than yours truly.

A Few TV Stops in New York on Fed Day

Expert: Fed Fires ‘Shot Across the Bow’ on Balance Sheet Reduction
CNBC The Fed — Danielle DiMartino Booth

No One Knows How the Markets Will React to the Federal Reserve’s ‘Quantitative Tightening’
The Street — Danielle DiMartino Booth

Fed is Shifting its Focus to Balance Sheet Reduction instead of Interest Rates
CNBC The Fed — Bill Gross

On a personal note, I am delighted so many of you have subscribed. Next Wednesday marks the onset of a new journey and I am gratified to have you along. Bottoms up, friends and new subscribers! I raise my glass to you!

If you have not yet subscribed, please email subscription@dimartinobooth.com and type ‘Subscribe’ in the title line.

This weekend and next, wishing you well,



ICYMI.ddb, In Case You Missed It — August 4, 2017

In Case You Missed It — May 12, 2017

Dear friends,

There are some predictions you just don’t want to come to fruition. As bad as things have been for retail, they just seem to be getting worse. It’s beginning to look as if the operating environment will assist in expediting the ripping-off-the-bandaid solution to what ails retail, that is resolving the overcapacity scourge that’s become the new retail reality, seemingly overnight.

If you’re into connecting the dots for fun during trading days that seem to stretch into an infinite sea of complacent calm, consider the value of the land under the malls that won’t be with us in the near future. These malls of our collective past may today be rendered irrelavent, labeled as they are ‘B’ and ‘C’ properties. But many are in pristine locations.

Viewed through this cold prism, you’ve got to give credit where it’s due.  Gleaning value via preemptive store closers salvages what little there is to be had from the wreckage. This will work for those nimble first movers.

In such fluid environments, though, wrinkles set in fast. Enter auto dealers, who are also waking to the reality of requiring smaller physical footprints to maximize profitability. (Yes, Virginia, you can shop for a car on the World Wide Web.) The question is, what happens when shrinking dealers’ real estate listings collide with the supply of primo real estate coming onto the market via mall razings?

The short answer is anyone who tells you they know the end result is lying. We are sailing into uncharted waters as Columbus did way back when. Oh, and by the way, concluding the exercise of connecting of dots requires you incorporate oncoming record supplies of multifamily and lodging properties. Starting to get the fuzzy picture?

For more on the potential for the retail meltdown to converge with peak autos, please enjoy my latest weekly Bloomberg Prophets column:  Car Sales Will Be Key to Job Creation — The renewal of the auto industry has been a major driver of economic growth in recent years.

If that’s not uplifting enough and you’re hankering to hear how I really feel about the latest economic developments and where my former employer, the Federal Reserve, fits into the equation, please listen to to a recent interview with Bloomberg’s Pimm Fox:

Signing off from Norfolk, VA where business has carried me and I’m happy to report, crabs are in season.


Click Here to buy Fed Up:  An Insider’s Take on Why the Federal Reserve is Bad for America.

Amazon.com | Barnes & Noble.com | Indie Bound.com   |   Books•A•Million


In Case You Missed It — March 24, 2017

Dear friends,

To say that we live in a brave new world, at least as it pertains to the media, is an understatement. Forget TV and radio as the sole conduits. Since Fed Up’s release five weeks ago, which spans approximately a dog year, I’ve done countless podcasts, Skype radio and video interviews, and Sirius radio stations. I’ve been on channels I’ve never heard of with such deep followings I clearly need to get out more.

Don’t get me wrong, there’s been plenty of traditional live TV and radio interviews. We can just no longer say that’s the norm.

I’ve also written. A lot. And that’s in addition to my weekly, which still stimulates my mind as no other intellectual outlet can.

Manners dictate that I not bombard your inbox every time I opine, in the written word or otherwise. But given the never-ending wrangling to which we are now subjected when our TVs are unmuted, I thought I would share two opinion pieces and one podcast released this week that remind us it is essential to look forward. We can only hope a spirit of compromise prevails giving our leadership in D.C. license to propel the country and economy into forward motion. The Bloomberg piece shot to the top of the most read list so clearly hit nerves. Let’s get going America! (In my humble opinion).

You will see the links to all three below my signature line. Have a great weekend.



It’s Stand and Deliver Time for Trump and Congress on Deregulation — CNBC

Pension Crisis Too Big for Markets to Ignore — Bloomberg

Nine Years Later…All Fed Up — The Bell by Adam Johnson and Tom Essaye Podcast


Bloomberg: Heed the Fed’s Balance Sheet Banter

Heed the Fed's Balance Sheet Banter, DiMartino Booth, Money Strong, Fed Up

Dear friends,

How is it exactly that we’ve journeyed from Uber-Doveville to life on Tightening Row? My answer is, “You tell me.” In the space of one election, Fed officials have metamorphosed from crying for fiscal stimulus to opining that the economy doesn’t really need all that much help after all from fiscal authorities.

The outlook has, in fact, improved so much that the unheard of, the sacrosanct, is now reasonable. Yes, if you have to ask, I speak of the precious balance sheet that was protected as is it were the very Ark itself. It, too, now is fair game to shrink.

If it looks like double tightening and sounds like double tightening, well then, by golly that’s what it is. The economic recovery is now so durable it can not only handle rising interest rates but an absent Fed in the Treasury and mortgage-backed securities in which it’s been ever present since the zero bound was hit back in 2008.

Yes, it is time to pinch yourself or ask if politics is so blatant as to be conspicuous in its very presence. For an explanation of this cryptic concoction, please read an opinion piece published yesterday.

Heed the Fed′s Balance Sheet Banter