The stock market keeps selling off with weaker economic data. The stock market is bracing for the worst in the near term. This week, the indicators have been weak with the ADP Employment Report, the ISM Manufacturing, ISM Services and The JOLTS number disappointing this week. Over the next week, we have jobless claims, unemployment, St. Louis FED Bullard speaking, CPI and PPI on the docket.
The ADP Employment Report disappointed this month with private hiring rising only by 145,000 for March 2023. The expectation was for 210,000. The February 2023 number was 261,000. Hard hit were the financial and professional markets with 97,000 lost, while hospitality, transportation, construction, and utilities grew by 109,000. The 1st quarter had only 175,000 jobs a month versus 397,000 jobs a month a year ago. All eyes will be on the payroll growth Friday. The market is expecting 238,000. This would be an unemployment rate of 3.6%. The FED wants the economy to slow…means higher unemployment with higher rates.
In addition to the ADP Employment Report, the ISM Manufacturing, ISM Services and The JOLTS number were also disappointing this week. The trade deficit also widened to $70.5 billion or by 2.7% demonstrating more pressure on the US economy. Both imports and exports were lower, reflecting a slowdown in US and global economy.
We are seeing a slow down in the economy but are we in a recession? The question will be when does it hit the job market? The question of if we are in a recession depends on who you ask. The data shows the US economy grew by 2.9% in the 4th quarter. The data is lagging in defining the recession, and it will confirm a recession after the fact. The stock market dramatic selloff seems to think it will be coming sooner. The stock and bond markets are a forward-looking indicator.
There is reason to be concerned about the near-term stock market and the economy. The signs of a slowdown are apparent in the financial sector which foresees the future. The growth of the hospitality, transportation and construction are a sign consumer are still spending money. The surplus of saving from the lockdown days are dwindling and the expansion of credit card debt show signs of weakness in the consumer. This is not a healthy path and will be effected by the rising interest rates. The rise in interest rates will be a slow burn on the economy but the economy can be engulfed in flames very quickly.
Even more troublesome in the banking sector, savers are moving money from savings to money-market funds. Money Market funds can’t be used for loans by banks. Is there going to be more banks like Silicon Valley Bank and First Republic out there? How many jobs will be lost because the local banks can’t make loans to small businesses? In addition, credit standards are getting stricter. Even if the bank has the money, borrowers might not get it. We are on the brink of a recession and a soft landing seems doubtful.
With all the troubling signs, it is very important to invest for the long-term. The economy will recover and went it starts; the stock market will react quickly. Look for quality and plan for long-term investing. Recessions come and go, but staying in the market has proven to be the best strategy in the long run. Stay the course.
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