Moneybeat: Red states dominate

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

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

EICHER: We have the final jobs report of election season and former President Trump was on it.

SOT: So in breaking news, the economy created a pitiful … you won’t even believe this … four days before the election, they did 12-thousand jobs. Normally you’d … 250, 300-thousand, 400-thousand, they did 12. Think of it, 12-thousand jobs.

Now you can slice and dice these figures in any number of ways. If you look at the revised six-month average for the first half of the year, it was around 200-thousand jobs a month. Then in the next two months, you had an average of 150-thousand, based solely on the strength of September … and now this 12-thousand outlier … what do you make of it?

BAHNSEN: Well, I really am in the camp that it almost doesn’t count. There is so much tracking error, lack of survey response, two hurricanes, the strike with Boeing—just various things that make it lumpy. And there are things like this that come up, Nick, that give an overly high number at times, and there are things that give a low number.

I can’t count how many times I’ve said we have to look at three-month running averages. We have to do it with the weekly jobless claims. Get a few weeks in a row because of accounting for lumpiness. And we really have to do it with the month-to-month as well. All things being equal, you know, the number is so low that you assume it’s still going to be low when it does kind of correct and normalize.

And of course, if you look at the month before, it was 100,000 higher than expected. So it’s hard to gather any economic conclusion from it. The weekly jobless claims continue to stay very tightly range-bound, so the overall conclusions about the job market nationally, for me, have not changed at all.

EICHER: Still, the political punch is hard to deny, which was a theme of The New York Times story that came out day-of, but then it added this about the jobs report, quoting: “It also strengthened the case for another interest rate cut when Federal Reserve policymakers meet next week.” I know you love it when business writers make these linkages.

BAHNSEN: Well, this is where I get disappointed that some of the reporters who cover the Fed don’t have Google or a web browser. Because I think that would be a powerful journalistic tool. The futures market had the Fed at a 100% chance of cutting rates before this report, and it’s a 100% chance after the report. So if somehow we went from 100 to 100 because of the report, I am lost on cause and effect there.

The whole thing, and I have talked about this quite a bit on Moneybeat, is somewhat granular. I don’t think we’re talking about what’s going to cause the Fed to do anything. I think we’re talking about what gives cover in an explanation. The Fed has to cut because rates are too high for borrowers that have the rate resetting in the next year, and because they believe they’ve done what they needed to do on price stability in all but housing. Bringing it back down to below 2%, and with housing, they ironically need lower rates to unfreeze housing, not higher rates.

So that’s why the Fed is going to be cutting rates. But does a low jobs report help give cover in the way it gets explained? I mean, sure. It’s just that has nothing to do with their decision-making calculus behind closed doors when the futures market already had it at 100%.

EICHER: And before we go … I mentioned the political nature of this jobs report … but your Friday piece for WORLD Opinions—which ran over the weekend and to which I’ll add a link in the transcript today—it tackles the political story differently. You say despite low unemployment nationally, the problem the Harris campaign faces is the job-growth disparity in the swing states. In other words, those so-called blue-wall states the vice president cannot win without … Pennsylvania, Michigan, Wisconsin … those states have really been left behind as far as jobs are concerned.

BAHNSEN: Yeah, and I think that there is a presidential electoral college message that you can extract from the data. But even larger than that, and much clearer than that, is this very basic fact: Where the jobs were before COVID, starting on January 1, 2020, to where they are now, the top 10 states are red. Now, Nevada is an exception. So, okay, nine. 9.5 out of 10, and then the bottom 10 are all blue, with the exception of Louisiana.

So, when you’re looking at states like New York, New Jersey, and Michigan, what is it about the red states that are creating the most new jobs on a percentage basis, percentage growth of new jobs, when more or less the top 10 are red and the bottom 10 are blue? I mean, that’s an unbelievable statistic in a country as diversified as ours, with 50 different states, 50 different makeups of industry and commerce and attraction and population demographics and all this kind of stuff.

Then you look at the Michigans, Wisconsins, Pennsylvanias in these battleground states, and it’s very underwhelming in the job growth. You’re looking at Michigan with 0.63% job growth since 2020, the beginning of 2020, pre-COVID. Wisconsin, Pennsylvania, 1.7 or 1.9%, respectively. And you know the ones at the top 10—Idaho over 13%, Utah over 12%, Texas over 10%, Florida over 10%—it’s very easy for some to draw the conclusion that whether it’s crime, homelessness, economic policy, regulation, tax, education, school choice, take your pick. There’s some issues that are positively impacting some states and some issues that are negatively impacting others. This could play into the results in the election of this week.

EICHER: David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. If you’re not subscribing to David’s regular market writing, you can find out more at dividendcafe.com. It’s free, and you can receive it in your inbox.

Well, David, it’s going to be a day tomorrow … can’t wait to talk again after we know more about the outcome of the election. Have a good one!

BAHNSEN: I’ll look forward to talking to you more about it. Thanks, Nick.

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