VIPs
- Trading the deltas, or changes from one period to the next, on nonfarm payrolls is becoming red sport on trading floors in these late-cycle days
- Temporary jobs have peaked ending a seven-month run of growth; January’s revision to -12k gives forward guidance on the emergent turn in future employment and inventory trends
- A leader of leading indicators, the American Staffing Association Staffing Index is a weekly gauge that tracks temp employment; the trend topped in September and has sunk to a three-year low
- The Challenger layoff report corroborates the turn in temps; three back-to-back months have seen layoff announcements of 2,500 or more attributed to “contract loss,” materially higher than the six-year average run rate
- Self-employed among small business owners is no safe zone; it’s pacing a rate of -6.1% annualized thus far this year, the worst showing in three years
- The risk of a negative delta temporary employment job print is rising; that’s good to know as traders have 17 days to gear up for a downside surprise
“It was the Deltas against the rules – the rules lost” read the movie poster for the 1978 American comedy Animal House. The film about a misfit group of college fraternity members who challenge the authority of their dean is considered one of the greatest comedies ever made. Accolades aside, the real-life Delta House has an unexpectedly storied history. A plaque at the site in Eugene, Oregon reads: “Home of A.W. and Amanda Patterson. He was a pioneer, Lane County doctor and surveyor who plotted a greater part of Eugene in 1853. Patterson was also a member of the Oregon legislature and was instrumental in establishing the University of Oregon. Amanda Patterson came across The Great Plains in the first wagon train of 1843. Their daughter, Ida, was a Eugene school principal.” Bluto, Otter, Boon, Pinto, Flounder and D-Day all channeled the Patterson House pioneer spirit, helping the Deltas launch the “gross out” film genre that became one of Hollywood’s staples.
Pioneers of high frequency trading live and die by deltas, which in their simplest form is change. Trades wagered on key economic reports are commonly defined as the change from one period to the next. The most recognizable delta to hit the tape each month arrives with the first words out of D.C.-based reporters on nonfarm payroll Fridays. The 20,000 change in February nonfarm payrolls that was nine times smaller than the consensus and surely earned traders who were bearish going into the number a nice chip to cash out last weekend.
One delta contained within the jobs report didn’t raise red flags because it didn’t print in the red. Temporary help supply employment, a widely-followed leading indicator of payroll employment that measures workers in the staffing industry, rose 6,000 in February. On the surface, such a modest result wouldn’t raise eyebrows. It was the January revision to -12,000, from the previously reported 1,000 that caught our attention.
Temp jobs had been growing for seven straight months. Now it looks as if they’ve tentatively peaked. Temps don’t just foreshadow future employment trends, they provide forward guidance on the inventory cycle. After the artificial supply build in the second half of 2018, a top in temps corroborates a rolling over in the inventory tailwind for GDP growth that’s dragging down some estimates for the first-quarter to a zero-handle, as we expected.
Forward guidance of forward guidance. The most rewarding part about prospecting for leading indicators is unearthing a leader of leaders. The American Staffing Association (ASA) Staffing Index fits that bill – a high-frequency, weekly gauge that tracks, and thus leads, the ups and downs in temp employment. The year-over-year trend in the ASA index crested at 3.9% in September, three months before peak temp employment. Through the first week of March, the ASA has fallen to a three-year low of -1.5%. These are not friendly deltas if you’re a temp worker; they portend red ink in future job reports.
Triangulating the trouble with temps with a third source solidifies the case. Conveniently, the Challenger, Gray & Christmas layoff report presented more evidence yet of the cycle high in temps. One of the better data sets from the Challenger report are layoffs stratified by reasons pink slips are written. The one that applies best for temps is “contract loss.” What are temp workers if they’re not contract workers? They put in full-time hours but are employed for a finite period of time. The Challenger series illustrated above is telling us that the gig is up. Job cuts for contract loss in the last three months have been north of 2,500, appreciably higher than the run rate of the past six years for which data are available.
Temp workers don’t just lose contracts, so do small business owners, many of whom are self-employed. Self-employment two months into this year’s first quarter is pacing a -6.1% annualized rate versus 2018’s fourth quarter, the worst showing in three years. Feather readers know we have doubts about NFIB’s superficial explanation for the weakness in its February small business report. The peak in self-employed workers hit in the first quarter of 2018 is far removed from the government shutdown.
Temp employment is a marquee signal for sell-side economists and strategists. It ranks right up there with ISM New Orders to gauge recession risks for the mainstream forecasting community. We know it’s 17 days, an eternity for traders, until the March jobs report hits the wires. But we are putting you on notice for the elevated risk of minus signs in front of temps. The recession scare trade laid the groundwork for the Powell Pivot in early January. At this late stage of the economic cycle, red deltas for temps would incite food fights on trading floors, Animal House style.