I thought I was through with writing about the monthly Employment Situation Report (ESR, issued by the Bureau of Labor Statistics, part of the Labor Department) when the US economy returned to something approaching normal after the 2008-09 financial crisis. But here we go again:

The BLS issues the monthly ESR on the first Friday of the month at 8:30 am, Eastern time. Market expectations for this headline job gains number were high, with the consensus economic forecast coming in at just shy of a million new jobs filled during April. The actual figure was +266,000.

This came as as a severe negative shock, at least to the AI competitors who dominate ultra-short-term securities trading in the US. Treasury bonds began to rise; reopening stocks began to crumble; last year’s stay-at-home winners bolted out of their doghouse and started to rise.

context for interpreting the payroll number

–prior months had been:

April 2000 -20,500,000

May 2020 +2,500,000

June 2020 +4,800,000

July 2020 +1,800,000

August 2020 +1,200,000

September 2020 +661,000

October 2020 +638,000

November 2020 +245,000

December 2020 -140,000

January 2021 +49,000

February 2021 +379,000

March 2021 +916,000.

In other words, if our eyes skip over the December figure, or if we discard it as a yearend anomaly, the country appears to have been making continuous, solid progress at getting people back to work after the pandemic.

The big positive turn in market sentiment began last October and accelerated as Biden took office and Washington began to fight the pandemic in earnest. Job increases followed suit. We know companies are already discussing the timing and techniques for returning employees to offices. So expectations for the April ESR were high.

In addition, as usual ADP released its monthly jobs report on Wednesday. In recent years ADP has reshaped that report into, in effect, a prediction of what the BLS would say two days later. Its figure for April was +742,000 jobs.

what went wrong?

Maybe this is a major setback to the market’s recovery thesis. On the other hand, maybe it’s nothing.

It could easily be that April was another month like December, a weak link in an otherwise strengthening chain.

It also may be that the seasonal adjustment factors that are routinely applied to the raw data have been skewed by incorporating into them the effects of the titanic employment drop in April of last year (-20.5 million, or a loss of over 13% of the workforce). Deep in the minutiae of the data, for example, food and beverage stores are recorded as firing a total of 49,500 employees. This seems odd to me, in an environment where employers of all stripes seem desperate to increase their workforces.

Two minor additional points: my experience has been that economists’ estimates of the ESR numbers are, generally speaking, not much more than extrapolations of recent results. I don’t find it that surprising that the consensus thought that the ESR number for April would be close to a million. I just don’t think the consensus is a guess that’s sophisticated enough to base buy or sell decisions on. Also, the ESR figures are only accurate to +/- 100,000 and are often subject to substantial revision. That’s again not enough, to my mind, to bet the farm on.

In my view, we really won’t know much for sure until, at the earliest, the June ESR.

market reaction

Stocks recovered as trading progressed on Friday from their early morning swoon; the 10-year Treasury not only gave up its early gains but ended the day slightly lower (the yield one bp higher) than the day before.

What’s more interesting, I think, is that the stock market seemed to take the report as an occasion to shift its emphasis away from the relatively simple idea of selling last year’s winners and buying last year’s losers. If I had to say from one day’s observation, the potential new direction is likely to be much more individual company- and earnings-oriented, rather than de by relatively abstract factors or growth/value themes. Yes, any new investment emphasis will likely continue to favor reopening beneficiaries over secular growth stocks, but the latter group won’t be dismissed out of hand. It’s also possible that inflation fears, which I personally think are very overblown, will be put on the back burner, although I’m less confident about this.

I was listening to an interview on Bloomberg radio while I was driving to PA the other day. The interviewee was academic specialist on the effect of taxation on capital investment. She scoffed at the idea that the higher corporate tax rates proposed by Biden will crimp companies’ desire to invest in the US.

Companies don’t react to taxes, she said. Rather, they try to envision what the local market for their products/services will be in, say, ten years, and invest accordingly. In the case of the US, they see a country with slowing population growth and, as a result, an aging average consumer gradually pulling purse strings tighter. For their capital allocation decisions, this is far and away the biggest negative.

Put in different words, wittingly or not (“not” being more probable) the previous administration has made the US look considerably worse as a destination for new capital by severely restricting the flow of immigrant workers to the US and by starting an ill thought out and economically wacky tariff war that limits the ability of manufacturers in the US to import materials or export products. The latter almost immediately shrank the flow of capital investment from abroad; the latter launched the shift of intellectual capital creation to more welcoming locations (think: Canada) outside the US.

Continuing efforts to undermine/overthrow the newly-elected government can’t have prettied up this picture, either.

I also recently finished an eccentric book recommended to me by my children, Why Information Grows, by Cesar Hidalgo, an information economist. It uses information theory to try to describe how information/economic growth happens. It starts with (Shannon) entropy, the idea that information/knowledge/skill/knowhow is inherently unstable and, left to its own devices, will deteriorate. It can be preserved in products, however, and enhanced in a systematic way through communities formed by like-minded individuals. These communities can be universities, or corporations or larger units like cities or countries. Sort of a takeoff on the idea of European monks preserving learning through the “Dark Ages”–that is, a nice story that maybe isn’t so complete.

What interests me about the book is that it highlights ways in which information can be degraded or lost–lack of support for education, and the race- and gender-hate politics aimed at hobbling or shattering research communities. Japan, where male descendants of the samurai and the 1980s-style manufacturing they represent are prized above all–and where there’s been no economic progress to speak of in 30+ years–immediately comes to mind. Closer to home, and to contemporary relevance, in the US the Trump-led Republican party is clearly an entropy champion, with its claim that Trump is still president despite having clearly lost the November election, and its January coup attempt perhaps making it the entropy champ.

The stock market is acting as if Trumpism is already in the rear view mirror and fading quickly. Biden’s success in controlling the pandemic has focused Wall Street on two ideas: finding beneficiaries of reopening and, on the negative side, avoiding stocks whose best attribute has been their ability to serve the quarantine market. What I’ve called the “capital flight” market, that is, seeking multinationals without extensive plant and equipment in the US, is long gone. The prevailing view seems to be that Trumpism has been reduced to a political fund-raising scam preying on sunset-industry workers.

As a stock market participant, I hope this view is correct. As a citizen, I think the remedy is a change for the better in the worst-in-the-OECD domestic support to retrain workers for next generation jobs.

I’ve just updated my Keeping Score page for April, the fourth up month in a row.