Powell, Payroll, & The Peter Principle
Powell conceding Wednesday that QE is still a viable tool reversed stocks’ declines but could not rescue FedEx’s stock; FedEx weakness may pinch the transportation sector at a critical time for seasonal hires which have offset the decline in seasonal retail hires in recent years
While forecasts for holiday sales remain high, the consensus is the economy is weaker than last year at this time; retail sales’ growth through August has fallen from 2018’s 5.9% pace to 4.2%; moving fewer goods in an e-commerce nation implies lower transportation headcount
A fourth quarter decline in transportation payrolls to a 200,000 from the last five years’ 250,000 average would translate to a print of -15,000 per month, which last occurred in 2009; despite green shoots, bellwether FedEx could foreshadow broader economic weakness
“In every hierarchy, the cream rises until it sours.” Give an outperforming underling a promotion and they will excel. Continue this process until this former bottom-rung occupant is referred to as “boss,” however, and you get incompetence personified. This is of course The Peter Principle, a book by Laurence J. Peter published in 1968. The author openly offered that the book was written as satire. But when was the last time satire sold over a million copies and stayed on the bestseller list for 33 weeks? Besides, studies have shown that overachievers often make crummy superiors.
In the spirit of giving credit where it’s due, the inspiration for today’s Feather came from a subscriber who emailed me a simple question yesterday: “Is it just my imagination that from Greenspan on, all of the captioned (including Powell) are classic examples of the ‘Peter Principle’? Just a thought!”
Some thought indeed. When the now Chair of the Federal Reserve was a rookie governor in 2012, he voiced concern that quantitative easing (QE) would become “habit-forming.” Eleven months into his current term, soon-to-be-former Powell acolytes sobbed openly (yours truly was sent many condolence letters) when Powell apologized for his naiveté back in his younger days. QE was a viable tool. And Wednesday, under extreme reporter duress, he conceded that QE was still on the table.
As is the case with addicts, investors poured money into the stock market the minute the drug dealer got them their fix with four sky-high words: Large Scale Asset Purchases (Fed code for QE). Red turned to green for the S&P 500. At the opposite end of the animal spirits spectrum, no words on earth could have salvaged the 13% decline in FedEx’s stock.
According to Powell’s way of thinking, the shellacking this bellwether took is purely a reflection of the uncontrollable nature of the ongoing trade war and nary a reflection of the U.S. economy. Indeed, the company cited a “weakening global macroenvironment driven by increasing trade tensions and policy uncertainty.” And we mustn’t forget that little thing about Amazon cancelling its contract with FedEx in June.
To Powell’s point, initial jobless claims remain at historic lows and the consumer continues to consume, albeit increasingly via the credit card channel. And we’ve definitely seen housing come off its lows in this latest batch of August data. Falling mortgage rates have found some traction. We even had industrial production turn up for the month though we would note that manufacturing production ex-autos is down 0.5% for the year. (Hat tip to QI compadre Peter Boockvar for that tidbit which has us thinking so hard, the upcoming Weekly Quill is going to revisit the global auto sector.) We’d characterize all of these recent developments as green shoots.
As for those bright green and yellow bars above, we were inspired to dig deeper into some data featured in a report on seasonal hiring by Challenger, Gray and Christmas. But it wasn’t the obvious headline – that seasonal retail hiring in 2018 was the weakest since 2009 and expected to “stagnate or fall slightly” further this year – that intrigued. With FedEx still fresh on the mind, it was the prospects for seasonal hires in transportation that resonated.
We’ve memorized the headlines. “Amazon to hire…” “UPS to hire…” “FedEx to hire…” This is indeed that time of the year. As you can see, transportation has added an average 250,000 to payrolls in the fourth quarter for five years running. Over that same period, seasonal retail hiring has come down. This is yet another picture of the e-commerce baton hand-off.
The exercise of marrying these seemingly disparate series did something that often happens – an unexpected relationship presented itself. On January 19, 2018, FedEx stock closed at its all-time high of $274.32. Around that same time, seasonal transportation hiring peaked and actually fell 2% over 2017 last year.
The running assumption is the spending will carry through the holiday season with the caveat that general perceptions of the economy are not as strong as they were last year at this time. For all of the bluster about the strength of the U.S. consumer, the year-over-year growth in retail sales excluding autos and gasoline through August 2018 was 5.9%. Over that same eight-month span this year, the rate has fallen to 4.2%. We would add that transportation payrolls grew at a tenth of their rate over the last year in August. And yes, they are related.
As we look to the fourth quarter, even a conservative downshift in transport payrolls to a 200,000 unadjusted quarterly rate would yield average seasonally-adjusted declines around -15,000 per month. Last time we saw that was 2009. Perhaps, FedEx has the future pegged? Perhaps the cream has soured.
Fri, 09/20/2019 – 18:25
via ZeroHedge News https://ift.tt/30aAJLw Tyler Durden