This morning, the June nonfarm payrolls report blew past expectations, with 287,000 jobs created versus 175,000 expected.
This is a stark contrast to the downward revision for May, which left the month at just 11,000 jobs created. That’s a substantial shift from month to month, but it’s important to point out that a large part of these new jobs are low-paying seasonal positions.
In fact, leisure and hospitality (think hotels, restaurants, etc.) saw an increase of 59,000 jobs, more than double its 27,000 average for the year. We also saw a bump of 14,000 jobs added by performing arts and spectator sports, as many families spend the summer doing activities with their kids.
Here’s what Charlie Munger had to say at the Daily Journal meeting
Charlie Munger spoke at the Daily Journal Corporation's Annual Meeting of Shareholders today. Although Warren Buffett is the more well-known Berkshire Hathaway chief, Munger has been at his side through much of his investing career. Q4 2020 hedge fund letters, conferences and more Charlie Munger's speech at the Daily Journal meeting was live-streamed on Yahoo Read More
Another 39,000 jobs “created” in June were the result of a strike ending at Verizon. Retail, which is also a seasonal sector, added 30,000 jobs.
That’s roughly an added 142,000 jobs related to seasonal trends and a one-off strike ending.
In short, the jobs report is a very noisy picture of our economy — one that doesn’t give you the whole picture.
The reality is that our economy is on much shakier ground than this latest report portrays. Let me explain…
After the June jobs data was released, the Dow Jones Industrial Average jumped 100 points and left investors with hopes of a stronger economy in the second half of the year.
But that’s not likely the case.
I focus on broader economic data that is less noisy and more concrete than an estimated jobs report.
I’m talking about durable goods orders. The data is heavily watched by economists and investors, and is used to gain a firmer grasp on economic growth. Currently, this data point is signaling that a bull-market-killing recession may be just around the corner.
Not So Durable Goods
The advance report for May durable goods orders fell 2.2%, compared to expectations for a 0.5% decline. Durable goods orders, which include items ranging from machinery and metals to transportation equipment and computers, are a sign of what corporations are willing to spend on investments.
A declining durable goods orders report, like we saw in May, is telling us that corporations reduced spending in May. One month is just one month though … so let’s take a broader look:
The graph represents durable goods orders dating back to 1992. The red areas represent the latest two economic recessions.
You can see how orders increase consistently going into each of these recessions, and then fall off. What we are seeing this time is more of stagnant growth … so far, anyway. We have yet to see orders fall off a cliff yet, but as the latest orders show, we are nearing that cliff.
What a lot of analysts will do is strip out the transportation equipment orders, since these can have extreme swings, like the 5.6% drop in May and the 8.5% rise in April. Once we take out that data, it’s considered core capital goods.
In May, core capital goods orders fell 0.7%, the fifth decline in the past seven months.
Income Despite a Fading Bull Market
Add to this weak data the sluggish 1.1% growth rate in the first quarter of this year and ongoing declines in corporate profit and revenue, and we have an economy on the brink of a recession.
This is something I have explained recently: Our seven-year bull market is on its last legs and may very well be dying of old age. What this means is that our Federal Reserve’s hands are tied — interest rates can’t go higher from here. At least not for another decade or so.
That’s why in my service, Pure Income, I continue to hunt for the best possible ways to generate stable and consistent income, regardless of the market environment.
In a no-income world, you don’t have to settle for a measly 1.25% from a bank CD, or even the 2% from the average S&P 500 stock.
Instead, in Pure Income, I look to consistently generate yields of more than 10% — more than five times the alternatives mentioned above.