The JOBS REPORT Was a TRAP… And EVERYONE Took the BAIT...

[00:00:00] Speaker 1: Last Friday, the U.S. economy reported the best jobs number in months, and the market sold off anyway. Stay with me, because that sell-off was the exactly correct reaction to the number, and I'm about to explain exactly why. By the end of this video, you will understand why the blowout number is more dangerous than a miss would have been, and what it means for your portfolio right now as we speak. So here's what happened. Non-farm payrolls came in at 172,000 jobs in May. The expectation was 88,000 jobs. That is nearly double the consensus estimate. The unemployment rate held steady at 4.3%. Average hourly earnings rose by 3 tenths of a percent for the month, and that brings it to 3.4% year over year. That was right in line with expectations. On the surface, this is a solid labor market report. The financial media anchors were pretty much smiling. The official narrative really wrote itself. The economy is resilient, the consumer is employed, and the Fed, it has room to act. And here is where I need to pump the brakes for a moment here, because the Fed has room to act is the most dangerous phrase in finance right now. It assumes the strength is real. It assumes the jobs are broadly distributed, and it assumes that the consumer behind those jobs is in good shape. I'm going to challenge all three of those assumptions right now, not because I want to be the bear in the room, but because the data, the data demands it, my friends. Would you rather get bad news that everyone understands or good news that everyone misreads? Because what we got on Friday was the second one. And in my experience, good news that everyone misreads is far more dangerous than bad news that nobody can ignore. Now, let me show you what the 172,000 headline is actually hiding. First, guys, if you like this type of content, please click like and consider subscribing. It's important to be in the know, and this is how you do it. Now, let's peel back one layer. And if you do, you'll find that three sectors, leisure and hospitalities, local government, and healthcare accounted for 160,000 of those 172,000 jobs. Everything else in the entire private economy combined produced barely 12,000 new job additions. I call this the magnificent three problem, and it should make you deeply uncomfortable as it has me. Leisure and hospitality alone added 70,000 jobs in May. That's nearly five times its average monthly pace over the prior 12 months. Within that, guess what? Food and services and drinking places drove 48,000 of those hires. Multiple analysts are pointing to a likely World Cup effect with the United States hosting matches this summer, and venues clearly staffing up for the surge in tourism. If that analysis is correct, and I believe it is, that tailwind reverses pretty cleanly in the coming months. Expect a meaningful give back in that sector by the fall. No question about it. Now, local government contributed 55,000, mostly non-education, municipal employment. Healthcare added a steady 35,000. That was right in line with its recent average. That's fine, but neither of those is a growth engine for the broader private economy. Stay with me. Meanwhile, financial activities shed 22,000 jobs in May. They shed, guys, 22,000 jobs in May. That brings the sector's cumulative losses to 107,000 since its employment peak just a year ago, with insurance carriers and commercial banking doing the heaviest bleeding. Here's an interesting one for you. Technology payrolls have been similarly soft for many, many months. The white-collar professional economy, the sector that historically drives consumer spending on big-ticket items, second homes, and investment accounts is not growing. It's actually contracting. So here's the number that nobody's really talking about. The share of unemployed Americans who have been out of work, forget this, 27 weeks or more, what the BLS calls the long-term unemployed. It has climbed to 27.5% of all unemployed, up from just 20.4% just a year ago. That is a cycle high. The people who have jobs are keeping them, the people who have lost jobs are getting stuck. The broader U-6 measure, which captures discouraged workers and those stuck in part-time work against their will, sits at 8.1%. That's nearly double the headline unemployment rate. So here's the question I want you to sit with. If the labor market is this healthy, why is consumer sentiment at the lowest level ever recorded in 74 years of survey history? The University of Michigan Consumer Sentiment Index landed at 44.8 in May. It's a record low. Third consecutive monthly decline in a row. Year-ahead inflation expectations rose to 4.8%. Long-run expectations climbed to 3.9%. Over half of all survey respondents, that's about 57%, spontaneously cited high prices as the primary force eroding their personal finances. The Strait of Hormuz and the energy price pressure it's producing are not abstract geopolitical events for these people, my friends. They are felt at the gas station, at the grocery store, and the kitchen table. I have so many videos out about this. Go watch them if you don't believe me. I give you all the details there. But guys, that's not the behavior of a population that feels secure. That is a population that is literally just hanging on. Here is where the good news becomes the bad news problem. And it gets very, very personal for your portfolio. The 172,000 headline handed the Fed, literally guys, a permission slip. New chair, Kevin Warsh, sworn in just two weeks ago, walks into his first FOMC meeting on June 16th with a blowout jobs report and an inflation print at 3.8% sitting right on his desk. Futures markets, after Friday's report, now assign roughly 70% odds of at least one rate hike by December, according to the CME FedWatch tool. That was a rounding error a few months ago. The 10-year Treasury guys finished Friday above 454, and the 30-year crossed back above 5%. This all on Friday. Those are mortgage rates and corporate borrowing costs, and they are being felt in real time. They adjust right away. Any language in the June statement or the dot plot that supports the hawkish narrative will hit Treasury yields even harder. It's going to compress stock multiples and apply yet another layer of pressure on a consumer who is already cracking at the edges. And don't miss Wednesday's CPI print at 8:30 a.m. Eastern, Wall Street time. That number has the power to either hand wash an even bigger permission slip or complicate the narrative heading into the meeting even further. I was worried about a number coming in on expectations. A coin toss number tells the Fed almost nothing but a blowout concentrated in three sectors with white collar contraction underneath it and record low consumer confidence on top. Guys, that is far more worrisome than what I expected walking into Friday morning's report. The labor market is not falling apart. I'm not calling this report fraudulent either. What I am saying is this, the headline handed the Fed a permission slip. It may not be ready to use wisely in a consumer environment that is far more fragile than equities near with equities near record highs would suggest. The real risk is not the number itself, my friends. The real risk is that policy makers, policy makers respond to surface strength while missing the stress that is pretty clearly the number itself, the number itself is very important. If you just looked, the labor market is not breaking in the traditional way. It's not freezing with fewer people losing jobs, but more displaced workers struggling to get back in. The ball is in the Fed's court right now. The only question that matters going into next week is whether Warsh looks below that surface or just responds to the print. Long-term focus, my friends, always wins. Please stay focused right now. So your truth bomb for today is this. The jobs number wasn't a broad-based boom. It was the magnificent three problem hiding in plain sight. And the Fed just got handed a permission slip. It may not be ready to use wisely.