The Economic Cycle Research Institute’s (ECRI) Lakshman Achuthan recently sat down with CNBC’s Michael Santoli to discuss the jobs growth downturn. Keep in mind, this conversation was held on Wednesday, several days before Friday’s disappointing jobs report.
Achuthan told Santoli there’s a “very clear cyclical downturn in jobs growth, there’s really no debating that, and it looks set to continue.”
Achuthan said January 2019 marked the cyclical peak in jobs growth, has been moving lower ever since, and the trend is far from over. Both nonfarm payrolls and the household survey year-over-year growth are in cyclical downturns, he said.
While the economic narratives via the mainstream financial press continue to cheerlead that the consumer will lift all tides thanks to the supposedly strong jobs market, Achuthan believes the downturn in jobs growth will start to “undermine consumer confidence.” And it’s the loss in consumer confidence that could tilt the economy into recession.
He also said when examining cyclically sensitive sectors of the economy, there are already “questionable jobs numbers,” such as a significant surge in the construction unemployment rate.
Achuthan said nonfarm payroll growth has plunged to a 17-month low, and the household survey is even weaker. He said the top nonfarm payroll line would be revised down by half a million jobs in the coming months, which would underline the weakness in employment.
Achuthan emphasized to Santoli that ECRI’s recession call won’t be “taken off the table. We’ve been talking about a growth rate cycle slowdown. We’re slow-walking toward — some recessionary window of vulnerability — we’re not there today — but this piece of the puzzle [jobs growth downturn] is looking a bit wobbly. This is the main message that Wall Street is missing.”
As Wall Street bids stocks to near-record highs on “trade optimism” and the belief that the consumer will save the day, in large part because of solid jobs growth. ECRI’s Leading Employment Index, which correctly anticipated this downturn in jobs growth, is at its worst reading since the Great Recession.
And Wall Street’s bet today is that the Fed can achieve a soft landing – as in 1995-96 – when it started the rate cut cycle the same month the inflation downturn was signaled by the U.S. Future Inflation Gauge (USFIG) turning lower.
However, this time around, the inflation downturn signal arrived in September 2018, the moment when the Fed should have started the cut cycle. With a ten-month lag in the cut cycle, belated rate cuts have always been associated with recession.
And now it should become increasingly clear to readers why President Trump has sounded the alarm about the need for 100bps rate cuts, quantitative easing, and emergency payroll tax cuts – it’s because he’s been briefed about the economic downturn that has already started.