Fire Every Economist

It’s high time we just eliminate the word “economist” from our lexicon. Or, at the very least, we could fire every economist because they’re consensus projections for September’s jobs report couldn’t have been more wrong. The U.S. labor market is thriving. Find out why below.

October 07, 2024

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In this issue of the peel:

  • It’s high time we just eliminate the word “economist” from our lexicon. Or, at the very least, we could fire every economist because they’re consensus projections for September’s jobs report couldn’t have been more wrong. The U.S. labor market is thriving. Find out why below.

  • Ubisoft management is sick of playing the public markets game, and Vistra Corp is getting tapped for its nuclear energy. Meanwhile, Spirit Airlines’ executives have lost all their spirit as the company prepares to go bankrupt. Finally, expect fewer Rivians on the road by year-end.

  • Last Tuesday was the first day of the 2025 fiscal year for the U.S. government. Guess how we celebrated? That’s right—by adding a record amount of debt to the national balance. Read below to find out why it’s worse than you think.

Market Snapshot

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Macro Monkey Says

Fire Every Economist

The only recession in the United States right now is in economic guesstimates.

It’s a good thing there’s no Nobel prize for worst economic projection because the competition this year would be through the roof.

September’s jobs data is the latest big, fat swing-and-a-miss for consensus estimates. And the entire economy is pumped.

Let’s get into it.

The Numbers

On Friday, the Bureau of Labor Statistics released the Employment Situation Summary for September, a.k.a. the September jobs report.

In the past few months, concerns about declining employment growth and a slowly but steadily rising unemployment rate have risen faster than your blood pressure when an interviewer asks you to “walk me through a DCF.”

September’s jobs report easily put those concerns to bed… for now.

Last month, the U.S. economy added an insane 254,000 jobs, beating estimates for 150,000 by a very nice 69%.

Plus, the additions reported in the prior two months were revised higher by 72,000 jobs. July’s employment additions were revised higher by 55,000 from 89,000, meaning the BLS undercounted by over 60%, while August’s numbers increased by 17,000.

In other words, employers need labor like you need a Zyn after your first Friday beer.

Higher-than-expected labor demand pulled the unemployment rate down to 4.1% from August’s 4.2%. That’s the first back-to-back monthly decline in unemployment we’ve seen since July 2023.

Plus, back-to-back months of declining joblessness should act like a dose of Prozac to calm the nerves created by the 5 months of increasing unemployment from March to July.

Putting the unemployment rate in a long-term context, however, we have quite a long leash before we even come close to the average unemployment rate from 2000 through December of 2019, sitting at 6.0%.

Long-term unemployment, those that are looking for jobs but haven’t worked in at least 27 weeks, did continue to increase, now at 1.6mn. That’s up 300,000 from September 2023, so while no one month saw a huge uptick, the trend is still moving higher.

Meanwhile, the labor force participation rate remains at 62.7% for the third month in a row, still below the >63% seen before the pandemic. The bull market in laziness continues to rage.

One of the best signs for the economy in this report is the spike in people working to help the rest of us get drunk and fat. In September, food service and drinking places added a very nice 69,000 jobs—nearly 5 times the 12-month average of 14,000.

Because these businesses tend to have a higher beta with the spending and the overall health of consumers, the fact that they’re hiring anyone with a pulse as quickly as they can is a huge vote of confidence going forward.

Recent months have also created concern that the government is “buying” job growth by hiring tons of people. I wouldn’t put it past Uncle Sam to do so, but again, taking a longer-term view eviscerates these concerns.

Since 1939—literally before World War II had even started—the average ratio of public employment to total employment sits at 16.01%. Although our current ratio has been increasing for a few months now, we’re still well below at 14.72%.

Finally, another piece of good news found in this report was continued real wage growth.

Keep in mind: The employment side of the Fed’s mandate is to create “maximum employment.” What this really means is that the central bank tries to keep the labor market at the “natural rate of unemployment.”

If that’s not geeky enough for you, super-nerds call it the “non-accelerating inflation rate of unemployment” or the NAIRU. It’s the level of unemployment in which GDP growth is maximized without triggering inflation.

Employment can trigger inflation when the labor market gets too hot, as we partially observed in 2021 and 2022. But now, nominal wage growth of 3.97% in September remains well above the PCE inflation rate as well as the historical average.

We haven’t gotten September’s PCE inflation data yet, so stay tuned to make sure this real wage growth is actually real.

The Takeaway?

Four words can describe the U.S. economy: firing on all cylinders.

The only exceptions can be found in ISM manufacturing, housing, and, of course, sentiment.

Negative sentiment is largely political, as obviously, the U.S. will collapse in minutes if the other team’s candidate gets elected.

But manufacturing and housing are sectors with the ability to kill the vibe for the rest of us. We’ll have to keep an eye on them, but for now, it’s full steam ahead.

Career Corner

Question

Hi, mentors. I have a quick question. After the initial coffee chat, if I am not getting a response to my emails, is it okay to be persistent and follow-up a third time via email again?

Answer

In that case, fortune is in the follow-up. In sales, on average, it takes three to four emails to hear back from a lead, whether they are interested or not, and it takes about six emails and three phone calls to close an interested prospect. Just make sure you use the networking script that we provide as a base.

Head Mentor, WSO Academy

What's Ripe

Ubisoft Entertainment (UBSFY) 30.74%

  • I’d imagine that after playing a certain video game for a while, you start to lose interest. Not sure if that’s true for players, but certainly for company managers. 

  • The family behind French video game maker Ubisoft wants out of the public market game. Along with fellow minority owner Tencent, they’re looking to go private.

  • Going private is even cooler than going public these days. Shares surged on hopes of a premium price tag if Tencent and the Guillemot family complete the buyout.

Vistra Corp (VST) 4.50%

  • What if I told you a utility company based in Irving, Texas, had a YTD return that makes Nvidia’s 159% 2024 run-up look like a bear market? Well...

  • Now up 264% so far this year, Vistra continued soaring to close last week. The electricity provider is a darling among investors who are bullish on AI energy demands.

  • Similar to Microsoft’s deal with Constellation, investors sniffed out that AI firms may tap Vistra for access to nuclear energy to power AI projects. Now, Google is considering tapping Vistra for the same purpose.

What's Rotten

Spirit Airlines (SAVE) 24.55%

  • Like when you get dumped and a year later your ex is married with kids in a mansion in Biscayne, Spirit is having some serious self-confidence issues.

  • JetBlue bailed on their planned merger with Spirit a few months ago after seeing what a mess it was. Now, Spirit is on the verge of bankruptcy.

  • The airline announced plans to consider going Chapter 11 (good bankruptcy) on Friday. With $3bn in debt, $1.1bn of which is due in the next year, whatever they decide, they’ll have to do it quickly.

Rivian (RIVN) 3.15%

  • This electric vehicle maker decided that it's entering its soft girl era for the rest of  2024, reducing vehicle production. Sounds like something I can get on board with…

  • But Rivian actually has a reason for lowering their output. A shortage of an in-house product caused the firm to decrease Q3 and Q4 production targets.

  • Rivian now expects to produce 47k-49k vehicles in 2024, down 15.8% from prior estimates of 57k. Delivery estimates were unchanged at 50.5k-52k.

Thought Banana

Day One and One Day

Nothing ruins a weekend more than waking up, looking at your phone, and seeing some David Goggins-type guy screaming at you, asking, “day one or one day?!”

Chill out. Unfortunately for us, Uncle Sam absolutely refuses to chill out about his spending. Day one of the 2025 fiscal year just began, and it’s clear that cleaning up this mess will still take one day.

Let’s dive in.

What’s Happening?

For starters, congratulations are in order. Congratulations to all you apes and everyone else because last Tuesday, October 1st, the U.S. officially set a new record for the most amount of debt added on the first day of a fiscal year!

$204bn was added to the U.S. national debt balance on Tuesday alone. Meanwhile, the Treasury also had to draw on its cash balance, pulling an additional $72bn. That means that—in a single day—Uncle Sam racked up another $275bn.

Usually, we love charts that look like this. If my portfolio looked like this, there wouldn’t even be a Daily Peel because I’d be busy yacht shopping all day.

Unfortunately, however, that’s our national debt balance, now totaling $35.678tn and even higher by the time you read this.

Close to 1/3rd of that debt, ~$10tn, is maturing in the next year. That means the U.S. will have to refinance by that amount along with additional borrowing planned for this year. As of now, the average rate sits at 3.3%, but this new tranche will be much higher, around 4%.

Interest payments have exploded to over $1tn, taking up ~12% of national expenditures, and are only set to grow further.

Additionally, Uncle Sam is adding about $1tn to the national debt balance every 100 days, meaning we’ll have more than $40tn in debt by the end of FY2026.

Interest payments will only grow as a percentage of the national budget. Given that estimates project a debt-to-GDP ratio of 200% by 2050 unless we do something about this, nothing else matters.

The Takeaway?

Let me say it louder for the apes in the back: unless we get our spending, taxation, deficits, and debts cleaned up, nothing else matters.

Whether you’re pro-canceling student debt or building a wall, we almost certainly won’t be able to finance proposed policies within the next few years as interest costs eat the federal budget.

But hey… maybe we’ll figure it out… one day.

The Big Question: How will rising interest rates on new debt affect future government spending priorities, and could we see potential cuts to key services or programs?

Banana Brain Teaser

Previous

A couple decides to have 4 children. If they succeed in having 4 children, and each child is equally likely to be a boy or a girl, what is the probability that they will have exactly 2 girls and 2 boys?

Answer: 3/8 or 37.5%

Today

Items that are purchased together at a certain discount store are priced at $3 for the first item purchased and $1 for each additional item purchased. What is the maximum number of items that could be purchased together for a total price that is less than $30?

Send your guesses to [email protected]

❝

In the short run, the market is a voting machine. In the long run, it is a weighing machine.

Benjamin Graham

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Happy Investing,
David, Vyom, Ankit & Patrick