Tattarrattat

Can words be objects of worship? As a pure observation from those who revel in the wonder of the written word, the question is rhetorical. In the case of English, the answer is also objectively affirmative. The language of the Queen, to whom we extend our best wishes at yesterday’s occasion of her Platinum Jubilee, is blessed with a handful of palindromes – words that read the same backwards and forwards. QI’s Catholic origins, which root us in the tendency to canonize, draw us first to deified. Born of the Latin root deus, being deified raises one to a godlike status. There are, of course, more pedestrian examples with which you’ll be familiar such as pop, deed, civic, kayak, radar, and level. Holiness begins after the fifth letter and ends with the longest semantic specimen recognized by the Oxford English Dictionary: tattarrattat, a self-descriptive word when enunciated for a ‘knock at the door.’ This paragon was gifted by James Joyce in his 1922 epic Ulysses.

Acknowledging that we might need to get out more, we’d add that we were relieved to learn that palindromes are not lonely. Their sibling is the semordnilap (the word palindromes in reverse), a tongue twister that defines words that spell other words in reverse such as star & rats and drawer & reward. The idea of backwards and forwards and diametrically opposite struck us when we saw the latest Gross Domestic Product (GDP) forecast from Ben Herzon, formerly of Macroeconomic Advisors who’s now with IHS Markit. Luckily, he’s safely made the move with his brilliant methodology for dynamically tracking GDP in hand. After incorporating Friday’s jobs numbers, Herzon figures fourth quarter 2021 economic output will settle at 7.1%, a mirror image of the 1.7% he’s penciled in for the three months ending March 31. Notably, on January 3rd, his model for 2021’s final quarter was 6.8%; the same cannot be said of 2022’s initial take, which started at 3.6%.

Over the last month, steadily declining GDP estimates had economists steadied for a downbeat number for January payrolls. Instead of the 125,000 gain the consensus was expecting, the Street was wowed by a 467,000 whopper. The surprise factor was eerily similar to the ADP data earlier last week, albeit in the opposite direction. Not to be outdone in the shock department, Canada’s job losses of 200,000 were nearly twice the -110,000 penned in and the lowest since January 2021, the last time the country effectively shuttered its services economy. While there’s every reason to expect a 2021 echo come February, we’re not convinced the magnitude of the miss was purely a Covid shutdown effect.

It comes down to what stood out in the data for both countries despite surprising in differing directions, and that is hours. After peaking at 35 extraordinary hours in January 2021, and concomitant with the massive upgrades to the number of warm bodies populating the workforce in November and December, the U.S. workweek is back down to 34.5 hours, much more in line with February 2020’s 34.4 (orange line). Canada’s workweek, which incorporates both the public and private sectors, peaked a few months later, in March 2021 at 33.2; it has since fallen a full hour, to 32.2 leaving its decline at nearly three times the magnitude of the U.S. (yellow line). Once again, something is not syncing up with a pure Covid shutdown narrative.

That logic directed us to the sector that leads both economies – manufacturing. Last March saw the factory sector working its workers north and south of the border to the bone. In the U.S., the factory sector workweek punched in at a peak of 41.7 hours (purple line) while that in Canada hit a high of 37.8 hours (pink line). Since then, that of the U.S. has stepped back to the same degree as that of the broad economy – by 0.5 hours while Canada has shed a full two hours. The decline of -5.4% is multiples of the -1.2% in the States. The magnitude also brings Mexico and its being in recession to mind.

We ascribe the probability of zero to any coincidence in the 2-Year/10-Year Treasury yield curve (green line) peaking at precisely the same moment in time – March 2021.

Full disclaimer: Of the 16 industries that took a hit in Canada last month, the losses were concentrated in six that were the most human contact oriented. That said, manufacturing still saw a loss of 10,000 in stark contrast to the 13,000 in factory sector gains in the U.S. The public lamentations of companies with AWOL workers defy the Bureau of Labor Statistics’ numbers. Per a Wall Street Journal article over the weekend, PPG Industries, “a Pittsburgh-based maker of paints, coatings and specialty materials,” suffered 40% of its workers’ absence in recent weeks.

Add it all up and something is not right in North American manufacturing. Moreover, consumers in both countries have picked up on the slowing U.S. economy. As you see on today’s right chart, in a change of pattern, confidence in the U.S. has fallen twice as much as it has in Canada. With the proviso that Herzon’s estimate was not affected by the jobs data, we can only imagine what the Atlanta Federal Reserve’s GDPNow will flash tomorrow when it’s revised from its initial 0.1% estimate for the first quarter. We do know it will pop one way or another.

Posted in Daily Feather.