| Dear Reader,
The US Federal Reserve has a dual mandate — not just to stabilize prices by taming inflation, but also to maximize employment.
This second mandate often gets forgotten, especially when it comes to mainstream back-and-forth over tariffs and trade wars. But this Friday’s payroll numbers are poised to make a big difference in Fed Chairman Jerome Powell’s approach to the economy.
At least … that’s what Wall Street’s expecting:  | 
The new rules are transforming the market. 1,878 high-risk stocks that could crumble (and 7 that could soar 1,000% in the next five years). Is your portfolio on the right side of this historic divide? Find out before August 22nd. See Details. | Video Transcript Welcome to Moneyball Economics. I'm Andrew Zatlin. And today, let's talk payrolls…
The latest payroll data will be coming out on Friday and the markets will move dramatically according to what is released. So today, I thought I'd talk about what the market expects. And secondly why, I think they're going to be surprised.
Right now the markets have violently positioned themselves over the last few weeks for economic slowdown. What they're expecting is confirmation of economic slowdown that will lead to interest rate cuts.
Why do they think we're going to see economic slowdown?
Well, because everything Trump has done since day one, it's putting downward pressure on the economy. Tariffs are out there … firing hundreds of thousands of workers at the federal level … cutting, government spending … creating just all this economic uncertainty that basically will lead to economic slowdown. What the markets are hoping for and what they position for is interest rate cuts.
See, payrolls are important not just for identifying where we are in the economic cycle, but they directly feed into the Fed decision making.
When it comes to interest rates, the Fed has a dual mandate, one of which is to keep payrolls up. And so a weak payroll number directly feeds into their decision about whether or not to cut interest rates and when. Right now the markets are expecting a soft number and therefore a June rate cut and possibly one as early as May.
What number needs to come out for the Fed to take action? Alright, anything say above 200,000, that's considered a hot economy. That reflects a lot of hiring. The fed's not going to do rate cuts. Markets will be very disappointed. Anything say between one 50 and 200,000, that's kind of a Goldilocks number that's indicative of economic growth. Not too hot, not too cold. Anything below 150,000, that's considered weak.
So where are we? What's the expectation for this month?
Well, the expectation is for weakness, not “wheels falling off the cart” weakness, but about 130,000. Below that 150,000 number, that line in the sand that indicates things are slowing down. Where's that 130,000 coming from? What's the background? If you take a look at last year and this year, last year, we were seeing it towards the end of the year. An average run rate above 200,000 economy was strong. Trump comes in, things cool down January and February, we have 111,000 each month.
And payrolls, again, remember, anything below 150,000 is soft. Then last month, March, we get this magically strong number, 228,000. The markets interpreted this very simply. They said, look, January and February were low because of bad weather. And that's exactly the reason why March was high.
So if you take those three months and you do an average run rate, we're pretty much at that 150,000 level again, that tipping point. Now they're expecting us to go below.
So it’s nothing unreasonable. Everything sort of fits the trend. Even though we had a spike last month, remember, that's against the background of a little yin yang. It was held back and then it was boosted.
Overall, it's slow. But I think we're going to see upside surprise. I'm on Bloomberg with a magic number of 171,000.
Again, that Goldilocks zone where there's no reason for the fed to cut rates. Well, the markets like that. Well, they might say, you know what? We kind of oversold. Maybe the economic recession that is on the horizon isn't necessarily coming.
Or they may do the opposite. They may say, we're so disappointed. Fed rate cuts are now pushed out further out on the horizon, and I positioned forward and I'm now screwed.
Why do I think there's going to be upside surprise?
Well, it comes down to the structure. It comes down to how payrolls are made. And every month, payrolls are a concoction of different elements.
For example, you get to the end of the year, you get to the cold season, it's all about holiday shopping, right? You're not going to see a lot of outdoor activity. Instead, you're going to see the hiring sectors are going to be retailers and shippers.
Now, you come to the spring, like April, well, you got warm weather. And so you're going to see, again, the components that matter for April are going to be warm, weather sensitive things like construction, recreation and so on.
That matters because a lot of those sectors, they're kind of buffered from tariffs. The cost of goods coming in doesn't define whether someone's going to go out and play golf. It is going to define whether manufacturing's hiring, but manufacturing doesn't really hire that much right now anyway. Aha. You could say, okay, but they could be firing and well, unfortunately, to contradict that point, we're not seeing that in the job as claims companies are not firing.
There's a lot of uncertainty. They just don't want to let go of their workers just yet. They may not be hiring, but they're not firing. But again, it comes down to the April components that matter are pretty much buffered from tariffs and doge. And so as a result, they're going to move forward. And it's, it kind of depends on consumer spending. Are consumers still out there spending in that case, Disneyland's going to bring in the same workforce that they need, plus maybe a little bit more.
Think of it this way…
Continued below What matters is activity.
Not so much how much consumers are spending, but how many consumers are coming in. You go to a Starbucks, the number of baristas who work at a given Starbucks are directly tied to the number of customers coming in the door. The foot traffic. And guess what? Foot traffic's pretty healthy.
For example, TSA released their daily results for the last couple of months, and it shows that the number of travelers across America, it's the same level of last year, which if you extrapolate means that consumer activity across the spectrum continues to be strong last year or possibly higher.
And again, going back to that barista example, if you've got all these travelers coming in the door like they were last year, you're going to need the same number of pilots, flight counter support, and so on and so forth.
And so ultimately, when I look at April, I see a structure that's a little bit immune to the nonsense that's created by DOGE and created by the tariffs. There's going to be an impact, and there is an impact this month because you can't fire all these people and gyms aren't going to suddenly expand and bring in their people. Coffee shops are going to see a little bit less foot traffic if federal workers aren't going out and getting their coffee.
But again, that's at the margins. It's a delayed impact. So it's a function of both the structure of April and the way April payrolls are built and also the economic impact of all of this. It's delayed government workers being fired. They're on severance packages, which means they're going to be included in payrolls by definition.
Not to say things aren't going to get worse from here, it's just that this month, I think the market's going to be surprised with a relatively benign number. And again, they may go up, they may love that. They may think we've oversold or they may simply have to take new positions to counter their bearish positions.
I see pressure to the upside, I see the market taking off on Friday, we’re in it to win it. Zatlin out the. 
Andrew Zatlin
Editor, Moneyball Economics |
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