Financial Foreplay

The markets are eerily quiet. With so many trends and facts to titillate us all, you’d expect a little more excitement. As it is, the big sell-off at the start of the year seems incomplete – a kind of financial foreplay without the climactic battering of a real bear market. What to make of it?

Q1 2016, change in S&P 500 EPS estimates – the biggest decline since Q1 2009 – click to enlarge.

One thing is sure: There is still no recovery. First, earnings-per-share estimates for the first quarter are dropping faster than ever in history. On the S&P 500, they’re already down by 8% from the previous year. What kind of “recovery” makes businesses less profitable? Well, there is one possibility. But this isn’t it…

A genuine recovery increases the demand for labor… which results in higher wages. This leaves businesses with more sales but smaller margins. But that is not happening today. Sales are not rising. They are weak or falling. So are wages.

As you know, Washington’s jobs data are largely fraudulent; the feds make seasonal and other adjustments to add jobs that don’t exist. Wage data are more reliable. They are based on tax withholdings. And they measure the money that workers take home in their paychecks. Reports Bloomberg:

“Employers added more workers in February than projected, but wages unexpectedly declined, dashing hopes that reduced slack in the labor market was starting to benefit all Americans. The 242,000 gain followed a 172,000 rise in January that was larger than previously estimated, a Labor Department report showed Friday. The jobless rate held at 4.9 percent as people entered the labor force and found work. Average hourly earnings dropped, the first monthly decline in more than a year, and workers put in fewer hours.”

Bummer.

Hourly earnings have headed down in the most recent unenjoyment report – click to enlarge.