Despite Yellen’s best efforts to basically dismiss any and all data as irrelevant going forward in The Fed’s decision-making process, we suspect all eyes (and algos) will be firmly glued to this week’s payrolls’ data. Will it be another record month for Obama to crow about? Will Mark Zandi do the “told you so dance” to all the trump supporters who seem less exuberant about the recovery? One look at this chart- and the disastrous trend – and we suspect, sooner-rather-than-later, the fecal matter will be striking the rotating object in America…
As Bloomberg notes, a growing gap is developing between corporate profits and job growth in the U.S.
Company earnings, a key driver of business spending and employment, tumbled in the fourth quarter and history shows that when they retreat, the economy often follows.
So we wonder just what kind of seasonal-adjustments are being used to ensure this gap remains. Notice the “gap” in 1999… that did not end well.
BofAML’s Michael Contopoulos adds that it is no surprise that falling corporate earnings is a leading indicator for economic recessions – when corporates struggle to grow their bottom lines, they are forced to source liquidity through either the capital markets or cost cutting methods. And when funding either becomes unavailable or too expensive, companies must scale back through capex and/or personnel reductions.
Although a US recession is not a necessary precondition for a turn in the credit cycle, but matters only so much as its influence on the shape of the next wave of defaults, we still look closely at how macroeconomic factors could affect corporate health. And it becomes concerning to us that after a 2nd consecutive decline in year over year corporate earnings, coupled with a lack of worker productivity and higher wages, that soon the very rosy jobs numbers may begin to disappoint.
With personal spending increasing by a paltry 0.1% for each of the past 3 months, we believe consumer spending habits are already more conservative than they should be given low gasoline prices and currently favorable employment statistics. Should jobs numbers begin to disappoint, in our opinion consumers would be quick to pull back and save more of their income.