/perspectives/macroeconomic-research/weaker-payrolls-reward-pent-up-demand-fed-pivot
Weaker Payrolls Will Reward Pent-Up Demand for Fed Pivot
Weakening jobs picture will signal that Fed tightening is working as intended.
Video
Scott Minerd joins CNBC to discuss ramifications of aggressive Fed tightening.
A major reason for the Federal Reserve’s (Fed) relentless pace of rate hikes is the tight labor market that has been remarkably resilient in the face of weak economic activity and stressed financial markets. But that resiliency is about to turn. Expectations surveys across the economy have become quite pessimistic, with businesses expecting lower sales and consumers seeing bleaker personal finances. Last week’s Beige Book from the Fed, with reports of hiring freezes and more cautious consumer spending patterns, confirmed preparation for a downturn. Historically, such a broad and deep deterioration in economic expectations has been a leading indicator for a decline in employment.
Negative Expectations Across the Economy Bode Poorly for Job Growth
Surveys Include: Consumer, Forecaster, Small Biz, CEO, Manufacturing, Housing
Source: Guggenheim Investments, Haver Analytics. Data as of 9.30.2022 for payrolls, 10.31.2022 for surveys. Survey average is average Z-score.
A more technical issue is also signaling an imminent change to weaker job growth. We’re seeing the largest gap since the 1950s between the year-over-year change in seasonally adjusted nonfarm payrolls and non-adjusted payrolls, when conceptually these measures should be equal. This gap is strongly mean reverting, adding additional downside risk to seasonally adjusted payrolls starting as soon as next month.
Seasonal Adjustment Boost to Payrolls Could Reverse in Coming Months
Nonfarm Payrolls: Gap Between Seasonally Adjusted YoY Change and Non-Seasonally Adjusted
Source: Guggenheim Investments, Haver Analytics. Data as of 9.30.2022.
With inflation still way too hot, and the Fed aiming for an unemployment rate around 4.4 percent, it will take some time before a weakening labor market causes the Fed to end rate hikes. But the correlation between our expectations survey aggregate and the labor market suggests that over the next six months the unemployment rate should rise to 4.2 percent with a cumulative decline in payrolls of over 800,000. As the jobs picture worsens, the Fed should gain confidence that tightening is having its intended effect.
That confidence should open up the door to a downshift in the pace of rate hikes at the December meeting. This downshift in rate hikes would be initially welcomed by markets, where there is huge pent-up demand for a Fed pivot. But as a recession continues to play out next year, risk assets would likely see renewed weakness, while interest rates would head lower.
From the Office of the Global Chief Investment Officer of Guggenheim Partners, Scott Minerd
By the Macroeconomic and Investment Research Group
- Matt Bush, CFA, CBE, U.S. Economist, Macroeconomic and Investment Research
Important Notices and Disclosures
Investing involves risk, including the possible loss of principal.
This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners or its subsidiaries. The opinions contained herein are subject to change without notice. Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities distributed by Guggenheim Funds Distributors, LLC.
© 2022 Guggenheim Partners, LLC. All rights reserved.
54743
VIDEOS AND PODCASTS
Anne Walsh, Chief Investment Officer for Fixed Income at Guggenheim Investments, joined Asset TV to discuss macroeconomic conditions, risk, and relative value in the bond market.
Karthik Narayanan, Head of Securitized for Guggenheim Investments, gives a master class in structured credit, including where he is finding attractive absolute and relative value in mortgage-backed securities, asset-backed securities, and collateralized loan obligations. U.S. Economist Matt Bush discusses recent economic data and the Federal Reserve’s inflation fighting strategy. (Structured credit is complex and may not be suitable for all investors.)
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
*Assets under management is as of 12.31.2022 and includes leverage of $15.2bn. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.
This is not an offer to sell nor a solicitation of an offer to buy the securities herein. GCIF 2019 and GCIF 2016 T are closed for new investments.
©
Guggenheim Investments. All rights reserved.
Research our firm with FINRA Broker Check.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.
By choosing an option below, the next time you return to the site, your home page will automatically
be set to this site. You can change your preference at any time.
We have saved your site preference as
Institutional Investors. To change this, update your
preferences.
United States Important Legal Information
By confirming below that you are an Institutional Investor, you will gain access to information on this website (the “Website”) that is intended exclusively for Institutional Investors and, as such, the information should not be relied upon by individual investors. This Website and any product, content, information, tools or services provided or available through the Website (collectively, the “Services”) are provided to Institutional Investors for informational purposes only and do not constitute a recommendation to buy or sell any security or fund interest. Nothing on the Website shall be considered a solicitation for the offering of any investment product or service to any person in any jurisdiction where such solicitation or offering may not lawfully be made. By accessing this Website, you expressly acknowledge and agree that the Website and the Services provided on or through the Website are provided on an as is/as available basis, and except as partnered by law, neither Guggenheim Investments and it parents, subsidiaries and affiliates nor any third party has any responsibility to maintain the website or the Services offered on or through the Website or to supply corrections or updates for the same. You understand that the information provided on this Website is not intended to provide, and should not be relied upon for, tax, legal, accounting or investment advice. You also agree that the terms provided herein with respect to the access and use of the Website are supplemental to and shall not void or modify the Terms of Use in effect for the Website. The information on this Website is solely intended for use by Institutional Investors as defined below: banks, savings and loan associations, insurance companies, and registered investment companies; registered investment advisers; individual investors and other entities with total assets of at least $50 million; governmental entities; employee benefit (retirement) plans, or multiple employee benefit plans offered to employees of the same employer, that in the aggregate have at least 100 participants, but does not include any participant of such plans; member firms or registered person of such a member; or person(s) acting solely on behalf of any such Institutional Investor.
By clicking the "I confirm" information link the user agrees that: “I have read the terms detailed and confirm that I am an Institutional Investor and that I wish to proceed.”