Get Ready For ‘100k Job Cuts in January’ — David Lin (Uncut)
Get Ready For ‘100k Job Cuts in January’ | Danielle DiMartino Booth
The last report, as you know, right, 255,000 non-farm payrolls added. It was significant because there’s 100k above the median forecast. What do you make of that number? There was also 100k that was imputed using a birth-death model that’s about to have a five-year seasonal adjustment and get whacked.
We’re speaking on January 20th at the Vancouver Resource Investment Conference. Trump’s inauguration just kicked off. We’ll be talking about his first policy initiatives, how they may impact markets and the economy.
Jobs market, the outlook for economic growth with Danielle DiMartino Booth, CEO of QR Research. Welcome to the show. Good to see you in person.
Good to see you in person. It’s always remote. I love when we get to visit.
Absolutely. It’s always lovely to see you in person. We had the same talk last year.
The jobs market evolved a lot over the course of the last 12 months. We talked about this. You were very bearish in the jobs market.
I’ll get your sentiment this year. But first, let’s talk about Trump inauguration day. It’s interesting because he did not, on his first day, announce officially tariffs on trade partners yet.
People were looking for that. People were scared and they weren’t sure what he was going to do. But it hasn’t been announced or declared yet.
What’s he waiting for? This is the way he negotiates, right? Take me seriously, but not literally. What we’re seeing today is that we’ve had a commission launched. They’re going to study tariffs.
And this, to me at least, has incoming Treasury Secretary Scott Besant’s fingerprints all over it. We’re going to be measured. We’re going to be directed.
We’re not going to have blanket fire. We’re going to target certain areas that are considered to be of utmost national security as they pertain to other countries producing first. And all the lowest hanging fruit, boom, boom, boom.
The United States is out of the Paris Accord, electric vehicle restrictions completely gone. There’s been an emergency declared on the southern border of the United States. But this won’t be smooth sailing necessarily.
There’s already three lawsuits that have been filed against the Department of Government Efficiency by unions representing government workers, hundreds of thousands of government workers. And he barely took his hand off the Bible before that lawsuit was already in the headlines. We’re going to talk about the labor market in more detail, but I think a question was brought to me yesterday.
It was a very interesting question. Suppose Trump carries through with deporting the immigrants, illegal immigrants that he talked about. What will happen to the labor market, what will happen to the labor supply, and ultimately inflation? Does this have any impact on inflation whatsoever? It won’t have an immediate impact on inflation at all.
Long term, we would have a real problem on our hands because of the known knowns. We know exactly what type of work illegal immigrants do. It’s documented.
These are the lowest skilled workers in the U.S. economy. These are jobs that Americans don’t want. Why mince words? And it’s been very difficult with certain younger generations because they think certain occupations are beneath them.
So it’s just tighter labor supply? It would be a tighter labor supply in certain sectors. But those are not the sectors where we’ve seen the bloodshed. We’ve seen the bloodshed in the white collar job market.
What’s going to happen to the Department of Government Efficiency, people want to know. It’s been sued three times within minutes today of Trump’s inauguration. So people are wondering whether or not the deficit in efficiency is actually going to be cut.
So I think that there is going to be a lot of red tape. Musk actually had an op-ed in the Wall Street Journal about a month ago or so. And his approach to making these spending cuts begins with constitutional attorneys.
So he’s going in and he’s going to fight fire with fire because he’s starting with attorneys. And because he knew, Musk fully anticipated what just happened, the lawsuit filed. And he wrote that he knew it a long time ago.
So he is ready to actually proceed and we forget that he has no stake in what he aims to do. Will he benefit from being so close to the U.S. government? Will his companies benefit? Obviously. But that’s not why I think why he’s doing it.
He does things because he wants to do them. And that is very non-political in U.S. culture. There’s a 30-page lawsuit challenging the legality of the Department of Government Efficiency.
It claims that it violates federal transparency rules of disclosure, hiring, and other practices. So there’s a bit of a roadblock here. The question is whether or not the deficit could be cut, whether or not Scott Bissett could obtain one of his threes, the 333s, bring the budget deficit down to 3 percent of GDP in the next two years.
It’s by 2028 that he has the goal. And in the most recent fiscal year, and at September 30, the deficit was 6.3 percent. So he’s talking about cutting it in half.
One of the things I don’t think that people are taking quite seriously enough is that there are areas that fall under the umbrella of mandatory spending, where you could actually press forward with this Senate, and as razor-thin as the margin is in the House of Representatives, with this House, in terms of why does the Veterans Administration, the VA, why do they get to negotiate prescription prices and Medicare doesn’t? So there are laws that Congress could pursue and change that would cut a lot more spending than what we are envisioning right now by just saying, oh, it’s going to be the Department of the Interior or the Department of Energy or the Department of Education. There is a lot more entitlement reform that can be done without stripping beneficiaries of their benefits. There’s a reason that health care is twice as expensive in the United States as it is in other developed countries.
All I’m saying is there’s other areas where fat can be cut. Do you think fiscal stimulus will be changing over the course of the next four years relative to the last administration, and ultimately whether or not fiscal stimulus could have a different impact this time around on monetary growth and economic growth? So David, you ask the best question I think I’ve been asked since Trump was elected. Extending tax cuts at the margin does nothing.
All it does is prevent a negative shock from occurring. But what you’re asking about is how fiscal stimulus will manifest. Do I see the government sending households cash, which that transmission mechanism ignited inflation and sent it to almost double digits because you were giving people cash and it was being spent into the economy immediately.
That is not how extending an existing tax cut acts. It’s not how it behaves. And it’s certainly not something that is going to be inflationary at all.
Yeah, and I bring this up because Scott Bassett in his testimony to Congress just last week highlighted the dangers of the rising deficit. He said, well, first of all, he said productive investment that grows the economy must be prioritized over wasteful spending that drives inflation. As we begin 2025, Americans are barreling towards an economic crisis at year end.
If Congress fails to act, Americans will face the largest tax increase in history, a crushing four trillion tax hike. Those were his words, exactly. And so we can talk about that in just a minute.
But my question is once more is whether or not the government will stimulate the economy from the fiscal side, because fiscal dominance is a theme I’ve been hearing all throughout 2024. If that’s gone, isn’t that bearish for markets? Every stated goal of Elon Musk and Scott Bassett is disinflationary, every last one of them. And it’s either willful ignorance on the part of the media and they want to say inflation’s coming because of tariffs, which we knew took a long time to play out in 2018, 2019.
It was there was nothing overnight. And when something did arrive that was inflationary, it was minor. Does this mean that gold’s not going to continue going up? No, because the uncertainty factor is going through the roof.
My point is, people are not listening to what Elon Musk wants to accomplish. People are not listening to what Scott Bassett wants to accomplish. And what they want to accomplish is cutting the government.
The main engine of growth for the last two years has been state and local government hiring and health care. That was a vestige of the COVID-era spending that has now run out. We’re in Vancouver right now.
The state of Washington, just south of us, has already imposed a hiring freeze. California, ditto, Maryland, Massachusetts, Arizona, other states. Because why? Because the COVID-era largesse has run out.
And what happens if you can’t continue growing your payrolls, David? Is that inflationary or disinflationary? Yeah. You called for more layoffs to happen last year, which was earlier. Yeah, the second half of this year.
And boy, did we get them. I mean. Let’s revisit the labor market.
Give it a report card, A, B, C, or D, over the last 12 months or so. I think you would have to rate it a C with an asterisk. Because when we got the revisions through the year ended June 30, 2024, what we learned was that the private sector hadn’t created 2.4 million jobs.
They had, oops, let’s cut that puppy in half, only created 1.2 million jobs. And that the trajectory suggested that job losses began in April of 2024. When I have people asking on my Twitter feed all the time, where’s the recession, Danielle? And they think they’re being cute.
I’m like, you’re not paying attention to the rewriting of history. And that’s what we’re witnessing right now. Do you think the recession happened in 2022 already? Not this last year, but 2022 when there were two quarters of negative GDP.
When you look at a recent Wall Street Journal story that says that Harvard and some of the best MBA programs in the country, that a third of the graduates aren’t getting jobs three months out. When you look at when the median duration of unemployment bottomed, when you look at layoff announcements, all of it happened at the end of 2022. All of the charts are in agreement.
You’ve got quite a few of them there with you. But things bottomed in late 2022. And since then, we now have Americans, the median duration of unemployment at 10.4 weeks.
Dave, you have to go back to 2008 to find that length of time. Continuing jobless claims are at the highest since November of 2021. There is a litany of things.
Macro Edge has done a fabulous job because frankly, Challenger has not done a fabulous job of truly tracking job cut announcements. And part of the challenge in tracking them, and now the media is finally getting wise to it, is that companies aren’t calling them layoffs. That Meta is saying that it’s going through attrition.
And there’s human resources departments working overtime to assign polite language to Verizon coming out and saying, we’re taking a $2.9 billion charge for severance because we’re down 4,900 employees. Was there ever a layoff announcement? No. You’re learning about it in earnings reports.
What’s your outlook this year is my question. Take a look at the NFIB Small Business Optimism Index. It shot up recently.
Last time it happened was, coincidentally, also Trump 1.0. And what did, in the very same month, hiring do? Actual hiring. I can’t tell us. It contracted.
Okay. So there is an inordinate amount right now. So there’s no relationship between how they feel and their sentiment of what they’re doing.
And what they’re doing. And those are the two dots that have to be connected. You’ve got to bring them together.
The optimism, the hopium has to match what we’re actually seeing on the ground with hiring. Now, if the U.S. economy went into recession, when I think it did, the discussion into 2025 and into 2026, depending on the success of the Department of Government Efficiency and other types of government types of job cuts. But for the private sector, if your average post-war recession was 11 months or so, we need to start talking about when the U.S. economy is going to come out of recession.
Well, there was a huge jobs report, the last report, as you know, right? 255,000 non-farm payrolls added. It was significant because there’s 100k above the median forecast. What do you make of that number? There was also 100k that was imputed using a birth-death model that’s about to have a five-year seasonal adjustment and get whacked.
So I’m not in denial of the data, but I’m also equally not in denial of the fact that it’s being imputed and the same exact Bureau of Labor Statistics is telling us after the fact that wasn’t really what happened. So you think revisions are coming? I think we’ve seen massive revisions. I mean, if you go from 2.4 million to 1.2 million in one revision, when you get actual headcount numbers from companies, because then you’re replacing the assumptions, the imputations made by bureaucrats and replacing it with what companies are actually reporting by law on a quarterly basis to the U.S. Census Bureau, that information is then given to the Bureau of Labor Statistics.
It’s not my view on the labor market. It’s simply the actual hard data. The markets took the report seriously because you remember it came out, the Dow dropped, I can’t remember, but S&P was down 3%, Nasdaq was down 3%.
The Fed kind of took that seriously as well, and they said they might pause. But you have a chart. That’s what non-traders do.
Well, that’s what, yeah. So I want to understand this chart and then ultimately how, what’s going to happen next and what that’s going to impact, what that’s going to do for the markets. So when I was on stage just now, my co-panelists were talking about being risk managers and being hedged in this environment when you’ve got more concentration in the stock market than you’ve had since 1929.
If you’re talking about rational players who are truly independent, of course we’re going to call ourselves risk manager on our client’s behalf. If you’re talking about Goldman Sachs, a sell-side firm coming out last week with a report titled Price to Perfection, warning its investors, and this is a sell-side investment bank where the policy practically is keep your clients long 100% at all times. When you have a big sell-side firm warning that you’re in the 93rd percentile of data back to 1928, that’s a sign.
That’s a sign if the sell-side started to caution its clients about overvaluation in the markets. That we’ve been talking about for two years. But at the same time, their guidance has been, it’s an AI revolution, stay long.
If the tone is changing, that’s something we have to pay attention to. Can the melt-up continue? Absolutely, certainly. But we have to bear in mind what revenge of the bureaucrats might or might not look like if the same bureaucrats, after they have their population controls shifted and changed their five years of seasonality, that now reflect instead of tremendous numbers of companies opening in the immediate aftermath of the economy reopening after COVID, to now reflect the biggest bankruptcy cycle since 2010.
So here’s the unemployment rate, civilian unemployment rate, hovering around 4.1, 4.2%. Are we stabilizing around 4% or is it going to change this year, do you think? If you had to guess. Given the fact that we’re on a run rate to probably hit 100, 110,000 job cut announcements in the month of January, and companies are making these announcements while trying to curry favor with the new Trump administration. So they’re making these announcements despite trying to be in good standing with the new administration.
Yeah, I think we’re going to see the unemployment rate continue to rise. Okay, and do you have, let’s talk about the CRE market, commercial real estate. You have a few charts here, repeat offenders in CRE across corporate America.
What’s your message here? What’s happening with the CRE market? It’s very easy to extend and pretend on a loan the first time. Regulators are a little bit less forgiving when you’re trying to extend and pretend the same loan a second time. So these are repeat offenders.
And we’re actually, the other chart on that slide is showing you we have the same phenomena with repeat filings of bankruptcies. Joanne Storrs is the latest example. They filed for bankruptcy a year ago.
They just refiled for bankruptcy again. So if you’re going into bankruptcy but not able to restructure and come out and survive, and you’re having to refile, this is when your actual economic damage manifests. And that’s why the FDIC shut down a bank on Friday for the first time in a while.
So this will be the year that extend and pretend. If you’re seeing commercial real estate loans double default, this will be the year that banks are actually having to take those losses. So it’s finally going to manifest into the financial sector, is what you’re saying? You can only default so many times on the same loan.
So biggest investment things, we have a couple minutes left. Biggest investment themes for 2025. Cash flow, cash flow, cash flow, cash flow.
As long as you are certain that a company’s cash flows are rock solid and you can ride whatever happens to the stock, but be assured that that dividend is going to pay you, own it. And I think gold is going to be the ultimate hedge, because we know we’re going to have a volatile first quarter, second quarter at least, because nobody knows what Trump is going to do. So your safest place to be in highly uncertain times is gold.
And right now, given we’re not seeing an abatement in cost-cutting announcements, in the quits rate continuing to melt down in the private sector, which you don’t want to see, that means people are afraid to quit their jobs. And they’re afraid to quit their jobs because their employers are reducing headcount. So as long as we remain in a cost-cutting mode, the Fed is going to have to pivot all over again.
And that’s what Jay Powell’s chief lieutenant, the person who speaks the most for him, Governor Christopher Waller, came out and said last week was, I expect three to four rate cuts this year. Really? He did. So the market’s going to be re- That’s not what the markets think, is it? Oh, they’re starting to price in a March rate cut.
And several banks came out after Waller’s remarks and have shifted March to their base case for the first rate cut in 2025. What changed since the last CPI report that came out just a week and a half ago? The CPI. Well, it’s still sticky, right? 2.9% is up from the previous month.
Even Powell’s famed Supercore is coming down. Why? Because Supercore is core CPI ex-shelter. So it’s discretionary services.
Right. If people are spending and it’s coming down. So if people have segued from, I’m not going to splurge on a discretionary good, but I’m going to make sure that my experiential lifestyle is held intact.
If now they’re cutting on the services side and we’re seeing rents fall and we’re seeing rents fall quickly, you’ve got 1.34 million apartments in the pipeline, in the construction pipeline, either completed or under construction. You’ve had half a million units come online per year in 2023 and 2024. We fully expect another half million units.
The Cleveland Fed’s new rent index tells us that the shelter input to the core CPI, 46% of the core CPI, should end the year somewhere around 2%. These are things that Waller is seeing. These are things that Jay Powell actually spoke to in his last press conference.
He talked about market-based PCE. It’s a whole new world if he’s paying attention to real-time inflation. And that’s what he’s telling us.
So bottom line, disinflation for Trump, at least for the first year. We’ve got less fiscal impulse potentially. I don’t see them.
I don’t see this Senate. I don’t see this House of Representatives saying, Elizabeth Warren, here’s your fiscal spending on a silver platter. I just don’t see it.
And we’re potentially seeing three to four rate cuts. I mean, if this all sounds kind of risk-on to me, no, no, not really. It should be very friendly at the short end of the yield curve.
- And what about for the labor market? Sum up, should Americans be worried about losing their job? Well, that’s what they’re telling us. Because, right, we crossed a Rubicon.
And the same exact day that we had that blowout payrolls report, something else that Powell and Waller recognized is that we crossed the Great Rubicon. In data back to 1968, when 50% of Americans say that, report to the University of Michigan, in the next 12 months, I see the unemployment rate rising. We hit that 50% threshold.
And once you cross that, we’ve never not been, it’s not a preceding indicator to recession. Once you cross that 50% line, we are in recession. And that’s what, I’m not telling you that the job market is insecure.
Americans are. 50% of them. Good.
Where can we learn from you, Danielle? Where can we follow your work? So follow me on Twitter, Demartino Booth, at Demartino Booth. And then come to my Substack. I’m actually going to be part of Substack’s first big la-di-da conference.
But I’d love to have you be a subscriber. You read the feather. You know it’s good.
Absolutely. Yeah, it is good. You’ve sent me some great slides today.
So we’ll put a few of them up when we talked about them on the screen. But thank you very much, Danielle. Pleasure seeing you.
So good to see you. Safe travels to your next destination. And we’ll speak soon.
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