Jobs Missed. Wages Stalled. Tariffs Failed. Bonds Fell Anyway.

The Peter Schiff Show Podcast

Peter Schiff analyzes a deeply flawed September jobs report that missed estimates by a wide margin, featuring downward revisions to July and August payrolls alongside stagnant wage growth. Despite

Key takeaways

• September non-farm payrolls came in at just 29,000 against an 85,000 estimate, with July revised down to -10,000 and August down-revised to 133,000.
• Average hourly earnings rose only 0.1%, marking the smallest monthly gain in over five years despite a 0.4% CPI increase in August.

Main topics

• September jobs report & wage stagnation
• Treasury bond bear market & rising yields

Notable quotes

We're headed for an economic storm that will produce a bond crisis.

Conclusion

Schiff concludes that the combination of structural debt overload, stagflationary data, and

Transcript preview

Speaker 2 (0:00) We're headed for an economic storm that will produce a bond crisis. It's probably the mother of all bond bear markets. We Speaker 1 (0:07) have $40 trillion in debt. We're going to be at Speaker 2 (0:09) $50 trillion before you know it. And we're paying 5 % on that number. That is a huge deal. As long as the stock market keeps shrugging off the weakness in bonds, there's no reason for bonds to stop going down. And there's no reason for rates to stop going up. So they're going to keep going up. until something breaks. We got everything that the bond bulls could have wanted. Bond market went down anyway. If the bond market couldn't rally on good news, what's going to happen when we get bad news? It's going to go from an orderly decline to a rapid decline. Just like, was it Hemingway? How did you go broke slowly at first and then all at once? Right now, we're in the slowly part. That is coming. Maybe it's going to hit in October. Speaker 2 (1:02) Today is October 2nd. So that means we got the September non-farm payroll report, otherwise known as the jobs report. And as I correctly predicted on the podcast that I recorded on Tuesday. The numbers came out below expectations, so a miss. But not only did this number come out below estimates, but as I also predicted on Tuesday, and in fact, as I predicted a month ago, when the August jobs numbers were first released. There were downward revisions to both August and July. So here are the numbers that came out for September. The estimate was for 85,000 new jobs. So very low bar. That's not a lot of jobs to create in an economy as large as the United States. But even though the bar was low, we couldn't clear it. The number came out at just 29,000 jobs. Not only was it below the estimate, but it was below the low range of what the estimates could have been. The low number was 40,000 jobs. The high expectation was 136,000 jobs. So we disappointed even the pessimists who only thought we would create 40,000 jobs. But last month's number, the August number, that was the big blowout number. That was about triple the estimates, which were 50 some odd thousand jobs. It was originally reported as 162,000 jobs. Well, that was revised down, I think, 29,000 to 133,000 jobs. So still above what they were estimating. But that was just the first revision. There's going to be more. I don't think that this is the end. I think we're going to have more revisions in future months, maybe even in future years, just like we did to the July number. And, in fact, last month. Their July number actually had a big upward revision because it was originally reported, I think, at minus like 24,000. And they had a big upward revision. And now all of a sudden it was positive, you know, 20 some odd thousand. And everybody was excited because they said, you see, we didn't really have a negative month. Well, we did because they took away most of that upward revision today. They revised July back down 29,000. So it's now negative again, minus 10,000 for the month. So you average those three months. You have a minus 10,000 for July. You only have a plus 29,000 for September. So even though you have 133,000 from last month for now, you average those numbers out and we still have weak numbers. In fact. Weaker than the average of all of those months. I haven't done the math, but I can tell. But again, this number doesn't mean much. They'll probably revise the 29,000 jobs lower. This may have been a negative month. In fact, for all we know, all the months are negative because there is a long history of going back, not just months, but years, and making downward revisions. In these numbers. Now let's look at the rest of the numbers from today's job report. So the unemployment rate, the official rate, rose to 4.2 % from 4.1%. So a slight increase in the unemployment rate. And that's because you had quite a few workers, according to the household survey, reentering the labor force. That's why the labor force participation rate inched up. From, I think it was a five-year low of when it was at 61.6 last month, or more than five years, it notched up to 61.8. That's still a very low level for labor force participation, but not quite as low as it was in the prior month. So that raised the unemployment rate. Private payrolls rose by 46,000. They were expecting an increase of 75,000. And in fact, a lot of the revisions from the prior month were with the private payrolls because they revised that down from 127,000 down to 89,000 private sector jobs created in the prior month. Manufacturing has been a bit better, although I think they're counting a lot of jobs maybe that aren't quite so manufacturing, but I'm sure they're related to AI in some way. But 9,000 manufacturing jobs were added, and that's a little bit less than the prior month, which was revised down from 16,000 to 15,000. But these are still more manufacturing jobs than we used to get. In fact, for years, manufacturing was pretty much always a negative. And so we've got a bit of a positive right now. And I'm sure all of that, again, is somehow related to AI CapEx. Here was an important number, though, that came out in today's report. The average hourly earnings month over month rose by just 0.1, so one-tenth of 1%. The estimate was for three-tenths, which would have matched the prior month. That is the lowest increase in monthly earnings in over five years. And this despite strong inflation. We don't have the CPI numbers for September yet. But for August, as an example, the CPI on the month was up 0.4. So prices rose four times faster than earnings, which is why consumer confidence is at record lows and there's so much pessimism because people are falling further and further behind. And of course, If you don't even have a job, if you're living on a fixed income, then you didn't even get that increase potentially. But workers are working harder and they have less to show for it. And of course, the real decline in earnings is even greater because the CPI, as I've mentioned many times on this podcast, is understating how much prices are rising. So workers are feeling the pain even harder than what these numbers would suggest. because the government is not being honest about. Speaker 2 (7:46) inflation. Now, these numbers probably were a bit of a surprise because we got the ADP numbers earlier in the week, and those numbers actually were better than expected. They were looking for 70,000 private sector jobs, and according to ADP anyway, there were 90,000. So there's a divergence here between the government numbers and these ADP numbers, but despite the fact that the ADP numbers were higher than expected, We got this week report. Now, as I mentioned on my Tuesday podcast. Speaker 2 (8:22) I forecast that we would have a weak report, and I also forecast that the bond market would react to it. But I said that if bonds end up selling off in the face of this weaker than expected report, which is what I expected bonds to do, you know, I said, Katie, bar the door as far as where bonds are headed. And that is exactly what happened. As soon as this number was released. The odds of a rate hike for October plunged. I don't remember the exact odds. It was 60-something, and they were cut in half. Now it's like 30 % chance. So investors went from expecting the Fed to hike in October to not expecting the Fed to hike just based on this report. Now, as soon as this jobs report came out, the bonds rallied. Now, bonds... We're beaten up again. I did my podcast on Tuesday, and on Wednesday, bonds made new lows. Yields made new highs on Wednesday. Now, there was a bit of a rally in bonds yesterday, and the rally continued this morning. In fact, after the numbers came out, bonds rallied to the point that yields hit new lows for the week. But this is a bear market. In fact, it's probably the mother of all bond bear markets. And that rally got sold, despite the fact that the expectations for a Fed rate hike in October didn't rise. They stayed down. The market sold off Treasury bonds anyway. And not only did yields close higher on the week, but they closed. Near the highs of the week, the yield on a 10-year treasury closed at 5.28. I think that the high on the week was 5.3. We may have got to 5.31. I forget. But that's about near the high of the week. The 30-year yield closed at 5.63. Now, I do think that intra-week, I think I saw the yield. get as high as 5.69 briefly before we had a reversal. But 5.6 is still higher on the week. So bond yields rose. Despite this week's jobs report, despite the fact that now investors no longer expect the Fed to hike rates later in the month, bonds went down anyway. That is a classic. bear market action, just sell into any news. And that is exactly what happened. In fact, that's not the only weak economic news that failed to lift the market this week. Speaker 1 (11:16) Actually running a manufacturing operation is brutally hard. Margins Speaker 2 (11:19) are thin, supply chains are unreliable. And if you can't see what's happening on your shop floor in real time, you're bleeding money and you don't even know where. That's why I want to tell you about Odoo. Odoo is a fully integrated business platform. and it has a complete suite of manufacturing applications built for people who actually make things. 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Speaker 1 (12:35) We Speaker 2 (12:36) also Speaker 1 (12:36) got Speaker 2 (12:37) some inflation numbers where we got the personal income and spending numbers. And same thing happened here. When this report initially came out, bonds rallied and then they sold off and they sold off hard. So these were the August numbers. So personal income. was supposed to rise by 0.5. And it only rose by 0.2. And they revised down the income for the prior month from up 0.4 to up 0.3. Now, consumer spending. which was supposed to rise by 0.8, actually exceeded that. It rose by 0.9. So income rose less than half of what people expected, yet spending rose more. Now, why? Are people just buying a lot more stuff? No, they're not buying more stuff. They're just paying more for the stuff they're buying. They probably bought less stuff, but they paid more for it. But obviously, if they spent 0.9 % more, but people earned only 0.2 % more, where did the extra money come from? Well, either they dipped into their shallow savings pool, which they did, or they borrowed more money. But that's how they paid for it. But the savings rate dropped down to 4.1%. Americans are having a hard time keeping their head above water. But the prices, the PCE, which the Fed looks at, was supposed to rise by 0.4, and it