This morning, the March nonfarm payrolls report topped expectations as the economy added 215,000 jobs, versus economists’ target of 205,000.
The report will be hailed as another win for the U.S. economy, as job growth above 200,000 is considered solid. Beating Wall Street’s expectations was just icing on the cake. And so, analysts and investors alike will take this report and run with it as they have so many others.
But a different report released earlier this week offers a foreboding look at why job growth will likely soon fade, and why you can expect low interest rates for quite some time.
On Thursday, we received the latest report on U.S. job cuts from Challenger, Gray & Christmas — a staffing company that compiles layoff announcements each month.
According to Challenger’s report, March job cuts declined 21% from February, marking the lowest monthly total since December.
While the data was positive on the surface, a little digging reveals the real picture. In fact, March layoffs were 31% higher than the same month a year ago, making it the fourth consecutive year-over-year increase. For the first quarter, employers announced a total of 184,920 job cuts, a 31.8% increase from the first quarter of 2015.
As you can see, the Challenger layoff data stands in sharp contrast to this morning’s March jobs report. There’s no way to sugarcoat the layoff data though — people are losing their jobs at an alarming rate.
With oil prices plunging over the past year, layoffs in the energy sector are understandable. But job cuts are now spilling over into the rest of our economy. Layoff announcements are ramping up in consumer-driven sectors like retail and economy-driven sectors like banking.
This job erosion should concern you, but it is even more disconcerting to Federal Reserve Chair Janet Yellen. Let me explain.
Looking Forward, Not Back
Layoff announcements are a data point I follow often, and have written about before. A key characteristic that I think is helpful to remember is that layoff data is a forward-looking indicator, one that tells us what companies expect to do over the next year or so. This morning’s March payroll data, on the other hand, is a lagging indicator, telling us what these companies have already done.
I noticed a trend with layoff data when I last visited the topic in October. That trend has continued, rather alarmingly:
While there have been seasonal ups and downs, the total number of layoffs (represented by the blue line) has trended higher since June 2014. You can see the overall trend represented in red.
The rise in layoffs is important, but even more important is that these job losses are shifting from the energy sector to other sectors of our economy.
For instance, the retail sector, a consumer-driven sector which should be thriving on lower oil prices, was responsible for 31,000 layoffs last month. Additionally, the computer sector reported 17,000 layoffs. More recently, Boeing, a company that should benefit from lower oil prices, announced it would cut more than 4,000 jobs to reduce costs. And Credit Suisse, a global banking giant, is in the process of nixing 4,000 jobs.
These are large companies that should not be taking on water due to low oil prices. And they are not on a hiring freeze … they are on a firing rampage.
The indication here is that the worst is yet to come, and that any hope for a return to traditional interest-based investment income is still at least a decade away.
No Jobs, No Rate Hikes
The Federal Reserve has made it a point to keep a close eye on monthly jobs data in recent years. Furthermore, with inflationary data relatively stable, Fed Chair Yellen has made it even more of a point to focus on economic job growth.
As a result, investors are now closely scrutinizing monthly jobs data in hopes of gleaning some insight into the Fed’s next move. Well, as you can see in the layoffs data, we know the jobs market can only be so strong in the coming months. In other words, we will not see the Fed make any meaningful moves with interest rates for the next year, and likely for the next decade.
Rising rates in America should come when our economy is near overheating, since higher rates slow down economic growth. Right now, economic growth is tepid, and our jobs market is on shaky ground.
In short, don’t hold your breath waiting on the next interest-rate hike.
Instead, spend your time hunting for ideal yield opportunities and building a portfolio designed to withstand another decade of low yields.