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The January Payroll Report To Confirm An Imminent Recession

Damir Tokic profile picture
Damir Tokic


  • The leading indicators related to the labor market are deteriorating, signaling an imminent recession.
  • Wage growth remains the key inflationary data point to follow.
  • The stock market is not priced for the likely recession.

Recession Warning Green Road Sign Over Dramatic Clouds and Sky.


An imminent recession

The record inversion in the yield curve spread (10Y yield - 3M yield) is suggesting that there is a near certainty that the US economy will slip into a recession sometime in 2023. More information on this provided by the

This article was written by

Damir Tokic profile picture
Global-macro research. Proprietary trader. Holding a valid Series 3 license as a Commodity Trading Adviser, member of National Futures Association. Professor of Finance. Editor-in-Chief Journal of Corporate Accounting and Finance.

Analyst’s Disclosure: I/we have a beneficial short position in the shares of SPX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (180)

SenBiden profile picture
It seems like "disinflation" has now become the new hopium, the new substitute for "transitory". I fear inflation will be with us for a long time and the tools the Fed has will have a hard time suppressing the high energy prices that look anything but transitory to me. And as I recall, core CPI strips energy out. I agree with your observations and conclusions and have heavily hedged accordingly. But I must say the Keynes quote about the market staying irrational longer than one can stay solvent has come to mind of late. Thanks for another informative missive.
@SenBiden Thank you so much for that great comment. I am rather new in the stock market, but have been reading so much about markets, economy, inflation, recession.. I really want to hedge my portfolio also against upcoming recession.. when you say, you are heavily hedged, may I ask you to explain that to me? or could you recommend something to read for me? thank you so much in advance.. greetings from italy :)
Damir Tokic profile picture
@LenaSophie most refer to buying put options, but there are other ways to hedge your portfolio
@Damir Tokic Thank you! 🤗
Paul T. Lambert profile picture
Reality is the exact opposite of prediction! If only all SA articles were this dependable...
This jobs report doesn't correspond with the news of mass layoffs in the tech sector. How is this possible? An anomaly or a false report?
@The crystal ball investor

Layoffs in tech sector are high profile, and high wage - but relatively small numbers.
John A Shulli profile picture
@The crystal ball investor Those job losses,in the tech industry, are spread across the globe,not confined to America…
Djreef1966 profile picture
They changed the way the numbers are extrapolated - from Bloomberg and Zero Hedge:

“Guess what: it was. Because, while theadjusted payrolls print was an increase of 517K, the unadjusted was - oops - 2.5 million!”

“... and the the final adjustment factor: +517K seasonally adjusted number vs -2.505 million unadjusted, which brings us to a record 3+ million seasonal adjustment factor.

And that, dear readers, is how you convert a 2.5 million plunge in jobs into a 517K, market blow-out 9-sigma payrolls beat, which moments ago allowed Biden to brag on TV just how strong his economy truly is...”

Just in time for the “State of the Union” address.
ckarabin profile picture
@Djreef1966 The oops is because payroll employment ALWAYS falls precipitously after the holiday shopping season. This kind of interpretation is what you get when someone does not understand seasonal adjustment!
jakefountain profile picture
@ckarabin Where is that recession you keep talking about?


That sounds about right. The Household Survey never showed those job gains anyway.
What I don't get is how the last 18 hours has been exceedingly bearish for the Nasdaq, what with bad earnings from Amazon, Apple, and Google plus the VERY large employment report(bearish) and yet we have rebounded back to virtually unchanged. What does this tell us?

When the market wants to go up even with terrible news, can we ignore that? This market wants to go higher, I think...
iconstockkilledme profile picture
@labradoodle Yep... you know the more I see the more I realize- the market is just a concept- prices are determined by supply and demand, computer trades etc. If you look at traditional valuations this market is an outrageous bubble- priced for the biggest boom economy in history, not recession. But anyone can see this and it goes higher every day anyway.
@labradoodle The govt manipulates the numbers all the time. Its very likely to get restated and analyzed down. Remember the job numbers from June 2022, supposedly that was $1M lower when they restated it.
ckarabin profile picture
@labradoodle So if the market want to go higher to even more elevated valuation levels in the face of recession, higher interest rates and a determined Fed, do you follow it? Kind of reminds me of my mother asking me as a 10 year old, "if your friend jumped off a cliff, would you follow him too?"
Thomas44 profile picture

yup... read that again!

timing is everything

that said, in fairness expect that number to be adjusted going forward - fwiw
iconstockkilledme profile picture
@Thomas44 The reason it "feels" like a recession (and also part of the reason for the 500K print) is that many people have 2, 3, 4 jobs and their real wages are in constant decline due to runaway inflation and stagnant wages. Stock market new ATH by May 1.
@iconstockkilledme "Stock market new ATH by May 1."
Are you predicting the market will be at an all time high of $4,819 by May 1st of THIS year?

THAT would be amazing.
ckarabin profile picture
@iconstockkilledme The BLS actually surveys of how many jobs people have and NO they have never found many with 2,3,4 jobs!
@Damir Tokic I wonder what JP and his FOMC colleagues are thinking today after they read this morning's labor report. Just one of the reasons I felt hiking the rate up by 50 bsp would have been a better decision.
"Jobs report: U.S. economy adds 517,000 jobs in January, unemployment rate falls to 3.4% as labor market stuns"
Damir Tokic profile picture
The revisions! The wage growth for December was revised much higher - and this was the key trigger for the January rally in stocks.
@Damir Tokic There are plenty of jobs for every education level and interest in the U.S. For various reasons, people just aren't interested in filling them. Maybe lots of them are on SA trying their hand at day trading?
@Damir Tokic This may be the most dynamic period in American history regarding innovation and opportunity across an incredible number of industries from energy (renewables, transmission, vehicles and much more), health/medicine, space, farming, AI, etc. I could go on. The Fed should lean into this instead of fighting it.
Damir Tokic profile picture
@hoosiers99 as long as inflation returns to 2%, that's the Fed's mandate
terryongarland profile picture
When you go out on a limb...
My thesis that the media is over hyping the amount of layoffs is confirmed. If it wasn't happening to the vaunted Silicon Valley literati it wouldn't be news. Tech companies over hired so its just basic business sense to make minor adjustments. Oh the humanity a few people who code are losing their jobs.
LQQKER profile picture
@The Real Cavalier Because the liberals hate Elon, a few months ago I was convinced that only Twitter was laying off people. I mean, I was reading about the Twitter layoffs everywhere! And it wasn't just disposable white males losing their jobs either, evil Elon was also laying off pregnant persons, LGBQT peeps, and even people of color! But then I started looking around and came to realize that Twitter wasn't the only US company making cuts to payroll.
@The Real Cavalier There are way too many people in tech.
ckarabin profile picture
@01ruxbunny03 By what measure would you conclude that?
AlphaElephant profile picture
Be very careful with government numbers including labor stats. If you figured in the historically low labor participation rate, you'd see we're nearing Depression era levels of true unemployment. Those who think they can skate by on government give-aways are heading for a rude awakening.
@fully awake you sir like me are fully awake. Trust me almost no one gets what your name implies. I do.
@fully awake

Yup. To get a good read on where we are economically, go to shadowstats.com. John Williams runs the site and uses the old metrics the gov't used back in the 1980's before every administration on both sides began watering down the statistics.
@Randywhitewasabada&s Black Mountain College?
ckarabin profile picture
The January rally was perfectly predictable though not that it would continue this long and after negative Fed comments too. It really looks like a selective blowoff in the speculative stocks since the DJIA and most non-tech names have been such notable laggards since the Fed spoke. Even if the weaker economic news were to cause the Fed to recognize it had done enough, the lag effect that monetary policy has means we have 6 more months of tightening monetary policy effect coming our way. And we have no rate reduction coming yet anyway. Recession is going to get increasingly painful now with no respite in sight as yet. Stock market will complete its suckers' rally now and play catch up as to where it should be, i.e. much lower.
@ckarabin The fact that those meme stocks are leading the way does not bode well for the overall market.
ckarabin profile picture
@NorthZorro Pure speculative mania, which we all know will eventually fade. Sucker's rally if I ever saw one!

Yup. I am watching closely to see if this bear market rally is over yet or has a little more room to run.

Given the bleeding ulcer I'm getting waiting this BMR out, maybe I should just take profits and relax in 4.5% MM cash.
jacks1234 profile picture
@Damir Tokic man, the market is past 4100 now. I’m glad I did my homework. My research showed 12+ month average lag between curve inversion and recession and often a lag in the market response, with the market usually very positive for awhile…If you look at q1 earnings, earnings have been pretty poor but markets haven’t cared much. I’m glad I didn’t take analyst advice, many saying sell everything before q1 earnings. To be fair, inflation dropped even more than most expected. I have been making decent returns with some equity dislocation and regression strategies, which aren't super dependent on market direction. I think most of your articles are right but it's just super hard to get the timing right. No one knows what's coming out of the jobs report today. I think it will be hot. Last, I can't believe the markets thought powell's remarks were bullish; it was mainly negative about the rates but they stuck to a minor disinflationary comment. It's all super hard to predict what everyone will latch onto.
iconstockkilledme profile picture
@jacks1234 Not just 4100- hit 4195 yesterday- SPY was down this morning almost $4 now only $2- everyone knows inflation numbers are fraudulent but the Fed is using that to pause on rate hikes- SPX obliterates the old 4800 high pretty soon IMO.
@jacks1234 Your comment is very interesting. So when exactly did the curve invert?? There has been talk after talk after talk how the first half is supposed to be bad and the back half good as the fed lowers rates. I actually think it will be the other way around. Earnings shrink a bit but since jobs and wage growth holds up, the first half is maybe at worst a flat line. Markets are people and I learned a long time ago that markets are full of people who have confirmation bias. Thats what I think we saw after powell spoke. Way to much speculative fever to say this bear was over last October. Bears typically end when the economy goes in the dumpster and the fed lowers rates then a new bull market can start Not the fed raising rates and jobs and wages continuing to grow.
@Robert 7809591

I agree. I've been tactically bullish for the last month or so on the theory that we needed to see a good sized bear market rally, which we now have. Only after a BMR can we resume the bear market and the final capitulation lows.

I'm just waiting to see if the BMR is over now or have another, final move up.
Do you have any thoughts on the fact that the economist who introduced yield curve inversions as a predictor of recessions thinks the indicator will get it wrong this time?www.bloomberg.com/...
Dale Roberts profile picture
I'd suggest that the lovey dovey J. Powell is very confident that there is a soft landing on the way. Maybe a soft recession at worse. @Damir Tokic

That can be the only explanation for Powell calling on the equity bulls?

He waved the red cape to come out and play.

I'm not suggesting I know where the markets will go, but that's my guess in trying to get inside Powell's head.

Either way, the U.S. stock markets has not priced in any softness, nor a higher ongoing rate environment.
Paul T. Lambert profile picture
What's the difference when the BLS simply adds whatever numbers they wish to the actual survey results? It's literally as simple as that: They pull numbers out of thin air as "adjustments," based purely on their opinion of how things should be. There's no science or statistics to it, just their own personal guesswork.
iconstockkilledme profile picture
@Paul T. Lambert Same with CPI- an absolute joke and a true crime against people who are struggling to make ends meet- this market is an absolute ponzi but it's going to 6000, 8000, even 10000 this year.
There is no unemployement target, I have seen that mentioned in your articles before you are talking about people's jobs and livelihood be more considereate. The fed has two targets full employement and inflation, inflation is mainly driven by supply shocks these shocks are working their way out of the system and inflation is causing consumers to spend less However consumers have had surplus built during pandemic which is helping also massive surplus in China which would help the world economy, energy prices have come down considerably in europe, all of this is pointing to a mild recession
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