The Labor Market Stays Strong

Good Afternoon,

This Week? Some good news, some bad news. You don’t typically find high job prints in recessions, but GDP forecasts still look rough. Commodity prices are finally coming down, so maybe inflation will stop eating away at your wallet!

Stay tuned - This week, we’re diving into employment data, GDP forecasts, and the future of inflation to show you where we might be headed in the second half of 2022.

In the News

It’s a mixed bag this week. The job market is hot, GDP projections are cold, and commodity prices are finally coming down.

Market forecasts from the week of 07/08.

The Labor Market Stays Strong

The roaring labor market survived high inflation, rate hikes, a slowing economy, and even new COVID surges. While markets were projecting slowing job growth this month, the labor market didn’t seem to notice.

After a jobs report today that showed a strong 372,000 new jobs, our economic future is starting to look a bit more optimistic. This makes a monthly new job progression of 436,000 -> 390,000 -> 372,000. That’s still a three-month decline - but a slowing and gradual one.

JPOW has justified his rate hikes by saying the labor market can pick up the slack, and so far it looks like he might be right. If the labor market remains strong, nothing short of a recession could be enough to put pressure back on the FED.

Job figures were on the high side of market projections last week, when Kalshi’s prediction markets were giving them a ~50% chance of being above 300,000.

Let’s keep the party going.

Negative GDP Growth Inbound

New week, a new set of market expectations that are even more certain we’re going to get negative GDP growth.

Maybe JPOW will back down, the stock market will rally, consumer sentiment and demand will increase, and we’ll all breathe a sigh of relief when GDP growth accelerates again.

I wouldn’t hold my breath.

Brace yourselves, folks. Looks like another quarter of negative GDP growth this year is all but certain – Kalshi’s prediction markets are giving it a ~90% chance. If the prediction markets prove correct, we will have had two consecutive quarters of negative GDP growth: a massive recession indicator.

Recessions are scary. Wages fall, unemployment increases, businesses hurt, and even Chicken Little starts to look like an optimist. But on the bright side, new luxury good sales decline, while second-hand sales go up. Anyone in the market for a new Rolex? You might get lucky.

What Goes Up Must Come Down

According to The Economist, oil, metals, and food have all seen price drops. Some highlights:

• Oil is back down around $100 / Barrel

• Metals have fallen 10-40% since May

• Agricultural commodities like wheat and corn are back below pre-Russia-Ukraine conflict levels

There are probably as many explanations for falling prices as there are theories for how the world was created, but the truth is likely a combination of factors. Everything from U.N. efforts to ease restrictions on Ukraine, to lower housing demand, to a general decrease in consumer sentiment have played a part.

The biggest question now is - how sustained will this be?

Markets project that it is more and more likely. Kalshi’s prediction market estimates of inflation ending (dropping below 0.2% month-over-month) have risen 10% in the last week.

Through all of this, one economic truism has held true – assets that overshoot to the upside eventually fall back to earth.

Markets are still down and the economic future seems a bit bleak – but at least you’ll probably keep your job and your home improvement projects won’t break the bank anymore.

Lit's Pick

We started off 0-1 after the jobs report came in way hotter than expected, but it’s time to bounce back in week two. We are taking the No on June Month to Month CPI > 0.9% for $0.51.

That's all for today, have a great weekend 🤝

Forecasts powered by Kalshi

As always, these market forecasts are powered by Kalshi, the first regulated prediction market in the US. Trust data, not pundits, and get your forecasts from people with real skin in the game.