The US "Non-Farm Payroll" data is the headline number that is the focus of most of the media and financial market participants. Today we learned that 156,000 additional folks were employed in September. They are referring to it as the "Goldilocks" report.
In Canada, there were an additional 67,000 people employed in the same month. Relatively speaking, that is a fairly significant rise in Canadian employment.
As I do each month, I remind all my friends that one month's data (especially the employment data) must be taken in context of the longer term trend because these numbers are subject to many and potentially significant revisions.
So we focus on the 12 month moving average (purple line)
to give us a "smoothed-out" view of the trend, which has continued to show slowing employment growth in the US over the last year.
In Canada the 12 month moving average (green line) has pretty much been moving sideways over the last year.
However, what we have spent time focusing on is the US Unemployment Rate, the 3 year historical moving average and the significance of their converging lines as a predictor of US recessions:
The rate of decline of the 3 year moving average (fairly steep) looks to intersect with the actual employment rate (which has been steady / rising over the last few months) in the next few months. The increase in the US unemployment rate to 5% in September (from 4.9% in August) adds credence to our thinking that a recession is not far off.
You will likely not see this in the media headlines. Perhaps not exactly what "Goldilocks" might imply.
The timeline lines up with the US election, the uncertainty surrounding it and the statistic that a recession has followed 5 of the last 11 elections (regardless of the politics of the new president).
As we have stated before (and I mentioned in my interview on BNN a few weeks back), we think that this is reason enough to be defensive when investing our and our clients money.
Add in the higher possibility of a US interest rate increase in December (based on CME group's Fed Fund Futures probability of 60%)
And... the recession scenario becomes even more likely.
I met a great number of happy clients on Wednesday night at our annual client event. Makes me think that we are doing something right (above benchmark returns with significantly less risk than the benchmark).
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist