Moneybeat: Jobs, recession, and politics

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: Time now for our weekly conversation on business, markets, and the economy with financial analyst and adviser David Bahnsen, head of the Bahnsen Group. Good morning!

DAVID BAHNSEN, GUEST: Well, good morning, Nick, good to be with you.

EICHER: Somewhat quiet week, David. Lots of mixed data and public companies are in earnings season, so I know you’re looking hard at all that. What was your sense of the week?

BAHNSEN: Well, I think that we are, you know, a little deeper into earnings season now. So you're getting more indications from companies of pretty good results from the second quarter—nothing that looks really difficult about their revenues or their earnings. Some have done better than others.

But several companies that have guided downward a little bit for their full-year expectations. You see on the margins a bit more of an expectation of things slowing a bit later into the year. Now, sometimes that's companies being overly cautious and it doesn't materialize, and they end up outperforming talked-down expectations. But I think that that's the main news so far on the earnings front.

Economically, the weekly jobless claims picked up again last week. But we know that on a monthly basis that from June, it was still a very benign report. So I think there is kind of a mixed bag of economic news.

The markets are up about almost 2,000 points from where they were just, you know, a couple of weeks ago. And so volatility in the market continues. But it continues in both directions: It can be up 1,000 In a week and down 1,000 in a week quite easily. It's done plenty of that over the last few months.

That's really where we are right now.

EICHER: As you say, the weekly claims for unemployment benefits rose once again. But yet we still have open jobs seeking willing workers and not the other way around.

Do you think we’ll stay in this low-unemployment phase or is this the beginning of the labor market going the other way?

BAHNSEN: Well, I think that we have pretty good data. It's just that we have two data points that are theoretically at odds with one another. There's no question that there still remain millions of job openings unfilled. And even though it's come down a bit from its high, it's still way above normal.

And it is most certainly way above what you see going into recession, because in recession, you see it reversed: There are more people looking for a job than there are job openings. And that's how you get high unemployment obviously. So we continue to still see a high amount of employers looking to find employees and not being able to find them. Yet, the weekly initial claims have gone up a bit. Now, they're still quite low, but they have moved just marginally week over week now for several months.

And so in theory, you would expect that to be foreshadowing to a higher unemployment rate. But it's early on - if we're going to get unemployment above 5 to 6 percent, we have quite a ways to go.

EICHER: You mentioned the “R” word, recession. The government on Thursday releases second-quarter Gross Domestic Product. Q1 was contraction—meaning the economy shrank—a negative GDP number. And everyone’s looking to see whether the Q2 GDP print is negative as well, and that would be evidence that we have been in recession—two quarters in a row of negative GDP growth. Is the Fed looking at this, too? It’s trying to head off inflation without tipping us into recession.

BAHNSEN: Yeah, I don't think it affects the Fed. But I do think it affects things politically. So if you do get a technical negative GDP print, I think that it's going to be very bad politically for the Biden administration and you will get a lot of people banging the recession drums - and not unfairly. I mean, the other party would do it to whatever the opposite party is in an office, because two quarters in a row is historically what we associate with recession.

There—I talked about this last week—I think there's ambiguity about the technical definition. But it's really kind of academic if you're going to have two quarters that print negative GDP, that's going to be labeled recession by political opponents.

The bigger issue, though, is not that the Fed will be looking at is just ongoing unemployment data relative to inflation data. I think there's a lot of reasons to believe that inflation, the rate of growth of inflation, will be coming down quite a bit. So much of it had been packed in energy prices. And energy prices, even though still very elevated, they've obviously come down and so that puts disinflationary math into the aggregate.

So there's a lot in front of us here: the Fed is going to raise rates three quarters of a point this coming week. That's very well baked in, and then we kind of see where things go into the fall.

EICHER: All right, that's David Bahnsen. He's a financial analyst and advisor and head of the financial planning firm, the Bahnsen group. David’s daily writing is at DividendCafe.com. You can read him online or sign up there to receive his daily missive by email.

David, thanks again.

BAHNSEN: Thanks so much, Nick.

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