Juggling Dynamite

Many cite US and Canadian unemployment levels today near 5o-year lows as grounds for economic optimism. Unemployment is a lagging indicator that commonly inspires misplaced confidence heading into recessions and then pessimism as it rises into subsequent economic expansions.

For leading employment indicators, we look to readings on the average manufacturing workweek, average overtime manufacturing hours, initial jobless claims and the ratio of voluntary to involuntary part-time labour (the part-time ratio). All have reflected a weakening job market in recent months.

Today, we learned that US job openings fell in July by more than expected to a two-year plus low, and over the past three months, by the most on record. Moreover, the job quit rate fell to the lowest since January 2021 as workers report growing pessimism about their employment prospects. See, US Jobs Openings Decline to Lowest since early 2021.

Hires declined to the lowest level since January 2021 and have dropped by 458,000 over the last two months, the largest decrease since the end of 2020.

It bears noting that the stock market has never bottomed before the Fed pauses its tightening efforts and only after interest rates have been falling with economic output and employment for many months. The longest Fed pause between the last rate hike and the first cut was 15 months (July 2006 to September 2007), and the average was eight months. In every case since 1969, recessions began at or shortly after the first rate cut, with the stock market bottoming 13 to 33 months after the last Fed hike.

Moreover, when we enter economic downturns at historically low unemployment rates (like today), central banks have been slower to start easing again than when unemployment rates are relatively higher. Hence, the next easing cycle is likely farther away than many hope.

Maybe July was the last rate hike this cycle, or perhaps it will be in September or November. In any case, the case for capital protection today is extraordinary.

Weak productivity pressures profits and, ultimately, increases unemployment. Eventually, after recessions, productivity increases, thanks to reviving demand and lower labour costs (after layoffs). So far, we are early in the layoff phase, with jobless claims rising in 48 US states. Similar trends are evident in Canada and many developed economies, not just in America. The segment below illuminates some of the challenges around productivity.

Labor productivity is a key, if often overlooked, economic indicator that policymakers use to gauge the health of the economy and guide fiscal and monetary policy decisions. But the U.S. has seen a productivity slump in recent years. And while the reasons for the decline are up for debate, the economic impacts are wide-ranging and can be felt across the board. So just how is productivity measured, how effective of a metric is it, what’s behind the slowdown and what impact does it have on the economy? Here is a direct video link.

Danielle was a guest with Jim Goddard on Talk Digital Network, talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.

Also, see Department Stores are Maxed out. Bearish commentary from retailers, including Macy’s, paints a worrying picture of consumers.

And, The Unseen Banking Crisis Concealed Behind the Climate Crisis:

It’s no surprise that there is a great deal of attention on the burgeoning crisis among insurance companies and their insured individuals and businesses because of the increase in the number and severity of major, destructive, and very costly climate events. The U.S. property and casualty industry suffered losses of $5 billion in 2021, which ballooned to losses of $26.5 billion in 2022. There have already been 15 confirmed weather/climate disaster events with losses exceeding $1 billion each in the U.S. as of August 8, 2023, with losses almost certain to exceed 2022.

The number of insurance companies going bankrupt, withdrawing from states, limiting coverage, and significantly raising premiums is increasing by the day. In addition, the reinsurance market, which is key for insuring major climate events, is facing reduced investor demand, which is going to decrease coverage while increasing costs even more. However, this isn’t just a crisis for insurance companies and their customers, as was emphasized at the meeting of The Financial Stability Oversight Council (FSOC) on Friday, July 28, 2023. The ongoing and worsening insurance crisis is the leading edge of a coming banking and financial crisis.