Job Growth, Starting From the Bottom (and Still There)

5 Idea Friday: Fading fade america; Room for Big IPOs; Screentime; Margins, margins, margins

• job growth, starting from the bottom (and still there)

• fade fade america (with a caveat)

• room for big IPOs

• screentime for Algernon (and a supposedly fun thing)

• margins, margins, margins

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1. Job Growth, Starting From the Bottom (and Still There)

A big selloff today, but who cares. With all the caveats around reading too much into any one release, we got a “good” jobs print, with above-expectation hiring—nearly 2x above-expectation, in fact.

It turns out that the leading signals of warmer hiring were on to something. Perhaps the most ‘on-to-something’ signal was BofA’s transaction and account data:

BofA

BofA has been showing a pretty big uptick in hiring, particularly for lower-income workers, well-ahead of the field (although there were other positive leading signals, as well).

That’s pretty consistent with what jobs day showed as well: solid growth, but predominantly in lower-income types of service work, like food services, healthcare (obv), hospitality, and local government, interestingly enough. Financial activities lost some roles, and there wasn’t much movement one way or another in business services, or anything that one could really call White Collar.

In other words, the labor market is “turning the corner,” but in a very Random Walkian sense. The breakeven is still quite low, and the gains are mostly concentrated at the lower end of things.

Contra Random Walk, wage growth seems pretty mild, but I suspect that the BLS is a lagging indicator on that front:

BofA’s account data shows accelerating wage growth at the bottom-run of the ladder.

It would be kind of strange to see a pull in demand, without some lift to wages, but the push-me-pull-me of a tight labor market and wages, is more broadly what I would expect to see (and there’s some evidence that that’s what we’re seeing, but not all the evidence).

So, basically everything is going according to plan.

ICE is good or bad for US workers?

Here’s something that’s pretty interesting, though, and a bit mysterious, if not unexpected.

Apparently job-growth in the industries most exposed to LatAm non-citizens is pacing ahead of the field:

JPM

Since Q4 of last year, the top quintile of industries with “latam non-citizen exposure” has had upward job-growth, and is now more growy than all the other less-exposed quintiles.

Now, you could interpret this a few ways, vis-a-vis ICE:

• pure noise and/or correlation with the growth of lower-income service work more generally;

• deportations haven’t mattered much at all because “non-citizens from latam” are still getting hired;

• deportations have mattered a lot because now those industries are hiring again, but presumably tapping citizens, rather than non-citizens.

¯\_(ツ)_/¯

Who knows, for now. It’s certainly something to watch.

Men dropping out(?)

This too was a fun observation.

Random Walk has written variously about how a healthcare-driven labor market is also a “ladies first” labor market, inasmuch as healthcare is a very ladies-first sort of industry. That’s definitely true, and has been true for quite some time, as adding ladies to the [healthcare] workforce has been a major contributor to net-new workers for decades.

What’s, perhaps less true, is that having a ladies-first employment scene has ushered in a concomitant rise of down-on-their-luck-unemployed men.

There’s maybe some truth to that, but if so, it’s pretty slight:

Employ America

Prime employment-population ratio has indeed flipped in favor of women, but men are still basically tracking where they were before the pandemic.

If lots of disaffected young men were now on the bench, then that’s most definitely not the ratio trend that you’d expect to see.

If there are disaffected men somewhere, it’s not the young ‘uns. To the contrary, the biggest male-female splits are occurring amongst the older folks:

Men 55+ and 65+ are dropping out of the workforce with increasing alacrity, while the opposite is happening recently, with older women.

This isn’t going to help the mechanic shortage one bit, no sir.

What to make of this? Idk, exactly, but healthcare, education, and local government hiring surely do favor older women relative to men.

What precisely is leading all these men to drop out of the labor force (other than age, of course)—and with quite so much urgency—is a bit of a mystery. Retirements, yes, but that should be a bit more linear (and should apply to women, as well). Of course, this is survey data and pretty noisy, so the “urgency,” may just be a data issue.

I keep saying it, but it keeps being true: idk what it means, but it’s something to watch.

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2. Fade ‘Fade America’ (with a caveat)

Random Walk has never been persuaded by the “Fade America,” trade, and that skepticism has largely been justified, but perhaps not entirely.

As it pertains to UST, foreign demand remains—not strong as ever, but certainly pretty strong:

BoG

Net-flows of foreign holdings in UST have stayed pretty positive, even as valuation went negative-to-barely-positive.

So, treasuries are still very much considered a good place to pick some yield, deficit notwithstanding. Foreigners will take our credit, no problem.

China takes less of it, but the rest of the field is picking up the slack.

On the equities side, however, the picture is a little different:

For equities, nearly all of the positive net change in foreign holdings has been valuation-driven (and that’s apparently often been the case?).

In other words, while foreign flows into UST are solid, foreign flows into US equity markets, appear more neutral. As it happens, foreign investors are dip-buyers, of a sort:

Interestingly, the decomposition also reveals that foreign investors tend to increase purchases of U.S. equities following major price declines in 2000, 2007, and to a lesser extent 2015.

That is interesting.

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3. Room For Big IPOs

Everyone knows that between the SpaceX IPO, and perhaps the Anthropic and OAI IPOs to follow, that there’s a whole lot of fresh issuance coming to the public markets.

SpaceX alone is going to be a chart-topper—at ~$700B in fresh issuance, that’s basically ~25 years worth of issuance, if you exclude the peaks.

It’s a lot. Random Walk doesn’t have much to offer on this front that’s different than what’s already been said, either here, or elsewhere.

This, however, was a bit surprising. Even with all that fresh float, net-issuance is still expected to favor demand over supply:

Buybacks have systematically outweighed issuance for decades now (much to the delight of shareholders), and even as Capex is eroding buybacks in the aggregate, equity retirements are still expected to be slightly ahead of fresh issuance.

Pretty wild, right? It’s easy to underestimate the sheer depth and size of US capital markets.

As a final IPO aside, since everyone is wondering whether the incoming biggest IPO is more than the market can handle, take comfort that, historically, big IPOs tend not to be market-toppers:

Of the past 25 largest IPOs, only 9 have preceded a negative one-year return.

In terms of what that means the answer is probably “nothing.” Past largest IPOs are nothing like future largest IPOs. If you wanted to squint at the chart and say something, you could probably say “when the largest IPOs come in quick succession, bad things tend to follow,” but even that’s a reach.

It was just a nice chart, is all.

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4. Screen Time For Algernon (and supposedly fun things)

I know it’s the kids who are using screens too much, and glued to their phones, they have no time for socializing, can’t focus, and get hooked on wacky conspiracy theories and all sorts of anti-social behavior . . .

But it’s not just the kids who are glued to their phones:

Pew

According to Pew, 41% of US adults report being online “almost constantly.” Another 44% said “several times a day.”

I suppose “being online” isn’t the same thing as “being on the phone,” but it’s not that far off. Point being that everyone is hooked on the interwebs.

So Lonely

Anyways, maybe all that screentime is making people feel lonely, and maybe they’re doing something about it:

BofA

Google search data is pretty low signal, but perhaps people are indeed asking the internet “how to meet people,” more frequently. They’re also spending more on irl experiences, like sports and live entertainment, which sounds pretty healthy.

A supposedly fun thing

Truthfully, I have no idea if there’s actually a relationship between screentime and loneliness and/or whether that relationship, such that it exists, has been a boon for concerts (and a bane for movies).

But, one thing I’m pretty confident about is that because flights and hotels have demonstrably less bang-for-the-buck, people are really digging cruises:

The value of cruises relative to “land-based” vacations has (almost) never been better.¹

I’ve never been on a cruise, but it sounds like something worth trying. Cruises are a good way to meet people, right?

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5. Margins, Margins, Margins

Random Walk (and everyone) have repeatedly made the point that part of what’s driving equity prices to record highs is some rather extraordinary profitability.

Companies were already getting pretty profitable—techcos, especially—but profitability has accelerated even more so, of late. And while it’s true that the AI supply-chain, and the rush for key components from gas turbines to chips to memory, is driving a lot of that newly discovered profitability, it’s not driving all of it.

Upward margin expansion is anticipated almost across the board:

Every sector but healthcare is expected to see at least some margin improvement over the next year.

That’s a good thing, obviously, and it also means that the market is not, by and large, priced to speculation. If companies are getting more profitable, that’s exactly the sort of thing that should make stock prices go up. Of course, any dent in that margin-story gets priced-in pretty quickly, as well, so there’s some downside risk there, too (because there always is).

And it’s funny, because with all those high prices (either demand-driven and/or hormuzian in nature), you’d think that the margin pressure would certainly be good for some firms, but that those high-prices would put equal and opposite pressure on other firms, too. And yet, the analysts are all pretty confident that profitability abounds.

Take this for what you will, but if you want to throw some cold water on that optimism, then consider the following:

When it comes to what companies are talking about on earnings calls, there’s been accelerating mentions of:

• cost pressures;

• input costs;

• higher wages;

• labor costs; and

• margin pressure.

On the other hand, mentions of “margin expansion,” are still quite high (~60%), but do not appear to be getting any higher.

To be clear, “margin expansion,” far outweighs anything else . . . but the rising wage pressure is (as per above) sort of what I’d expect, and the “input” and “cost” pressures are what I’d expect, as well.

All of that should put at least some hair on the margin expansion story, right? We’ll find out soon enough.

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Previously, on Random Walk

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1. Real hotel spending is and remains below pre-pandemic trends, very likely because the price of hotels and airlines are way-above pre-pandemic trends:

Airlines did get a bit cheaper (as demand sloughed off), but pricing has taken off since early ‘25 (and most of the spending is coming from the higher-end).