Where’s the recession?

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Ethan Wu (0:36)

Thank Pushkin.

They say a recession is when your neighbor gets laid off, a depression is when you get laid off. But what if none of us get laid off? That's the question that an increasing number of folks on Wall Street have been asking recently. After, I don't know, 12, 18 months of everyone saying, recession's three months away, what if it's not three months away?

This is Unhedged, the new markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in New York, joined on Tuesdays by FT Markets editor, Katie Martin. Katie, what are we doing here?

Katie Martin (1:15)

I don't know. It's slightly terrifying and it's very exciting, but I think what we're doing here is talking about whatever we jolly well want to in markets and finance, whatever is the hot issue of the day, whatever is the big question of the day, we're gonna try and unpack it for ourselves, frankly, and also for our listeners.

Ethan Wu (1:33)

Yes, kind of a live diary of what we're thinking about.

Katie Martin (1:37)

Yes.

Ethan Wu (1:38)

And today, it's the US economy, Katie. I want to segment this discussion about the economy into kind of three sections, strong, mixed and weak, different types of economic data pointing different directions. Yeah. Because there's a lot of stuff in each bucket. We recently wrote over at the Unhedged newsletter, chopping up 11 different economic indicators into these three categories, and it was hard. I mean, there's a lot of edge cases, there's a lot of ones you can go either way.

But we've picked three, I think, particularly clear data points to try to lay out kind of where we are. So let's start with strong, Katie. What is the strong part of the US economy?

Katie Martin (2:15)

Never bet against US jobs numbers.

Ethan Wu (2:18)

Yes.

Katie Martin (2:18)

And yet the market does every time, right? So every Friday, well, the first Friday of every month, we get the US jobs numbers, the non-farm payrolls, the Mac Daddy of the econ data calendar, the number one thing that everyone in finance and markets watches.

And every time Wall Street says, oh, we've got some jobs numbers, these jobs numbers are going to be terrible. It's about time we saw a real pullback in the jobs market because there's a recession coming, don't you know? And every single time, this number just blows way past expectations. And the smartest minds in the business seemingly cannot get payrolls anywhere close to right. This number has always been one that you can't guess. We used to have like a sweepstake in the office for payrolls. It's a really hard number to predict, but the pattern is clear.

Wall Street is consistently underestimating the US jobs market. And this is a major problem with the recession narrative because everybody knows, or do they, but everybody knows you can't have a recession without people losing jobs. And this just isn't happening.

Ethan Wu (3:16)

Absolutely. And I ran some numbers on this the other day, and it really surprised me how strong payroll growth is compared to kind of past expansion. So in the last three months, that would be, I believe March through May, the average monthly job gain has been 280,000.

During the 2010 to 2019 economic expansion after the financial crisis, the average was 180,000 jobs a month. So we're 100,000 above where we were in the last expansion per month. I mean, that is just really blistering. And any of the slowing, and we have gotten some slowing, it was stronger in 21 And I think you could say it was stronger in 22 as well.

That's just cooling off from being red hot. That's not any kind of recessionary indicator at all.

Katie Martin (3:56)

Yeah, but the fact that the market keeps saying effectively, we think this number is going to be bad, and then it comes out good, that is the whole problem with markets now, right? So we've had a huge rally in the S&P 500 so far this year. Stocks are just motoring higher, and people are miserable about it. Everyone hates this rally. Any normal year, you'd see US stocks up whatever, 12%, 14%, and people would be like, well, hey, let's crack out the champagne.