MOAR Negative GDP Growth

Good Afternoon,

New newsletter, new week of economic anxiety. Economic indicators across the board look scary, and everybody is worried about more pain around the corner. Will unemployment rates stay low? Markets aren’t buying it- over the last week, traders have dropped their estimates by ~6%. Investors are also betting on more negative GDP growth in 2022, giving it an ~80% chance.

Buckle up, folks. This week, we’re diving into employment data and the rate hike trajectory to show you what the market expects for your job and the future of the economy.

In the News

The light at the end of the tunnel is fading fast, finding a job is about to be harder than finding Waldo, and prices are going up like an overinflated helium balloon.

Market forecasts are from the week of 6/27.

Jobs Go Down

For a while, a strong labor market survived high inflation, rate hikes, and a slowing economy. Now? Markets aren’t so sure.

The Fed has been using strong employment figures as evidence of why the economy can sustain 28-year-high interest rate increases - but it looks like the canary in the coal mine may be dying.

What has the trend been like? Unemployment is still at a low 3.6%, but in May, nonfarm payroll employment only increased by 390,000. This was a huge slowdown from April's 436,000 increase.

This month? Our markets are only forecasting a ~50% chance that jobs figures increase by over 300,000.

Tech company layoffs were Act 1, but the worst has yet to come. Add an economic slowdown and high inflation to the mix and it looks like the average American is about to get sucker-punched.

Better make sure to bring your boss donuts next Monday.

The Economy Has Not Got Milk

Gas prices keep hitting records, employment is slowing down, and the economy is coming off its sugar high. As economic indicator after economic indicator comes in lower than expected, you better enjoy Summer ‘22 while you can.

Maybe traders are glass-half-empty folks - we sure hope so. In the last month, our markets have both increased the likelihood of another quarter of negative GDP growth by ~35% and dropped the odds of >5% growth by a similar ~35%.

Low GDP growth filters down through everything - wages, the pace of hiring, the likelihood of new family formation. But hey, at least divorce rates (allegedly) go down during recessions. Maybe Thanksgiving will be a little less exhausting this year.

J POW - Superhero, or Supervillain?

A few weeks ago, the Fed shocked markets by announcing the strongest rate hike since 1994. This is after Powell drew a clear line in the sand, saying a 0.75% rate hike was not being “actively considered”. Low unemployment and high inflation probably made them feel like they could do so, but we’ll see if they’re able to keep doubling down if the economy becomes fragile. 

Markets are now pricing 11+ interest rate hikes this year - the likelihood of 11+ hikes has increased by 67% over the last month. After months of telling us it was “transitory,” Powell has suddenly decided that inflation is public enemy #1 (guess the government doesn’t pay for his gas). The Fed is still telling us they think we can reach a “soft landing” scenario, but it’s looking more difficult by the day. Will J Pow be the hero we need, or a villain in disguise? Only time will tell.

Lit's Pick

Every week, we'll close out Eight Ball with Lit's Pick. We will track how well Lit does each week to see if he can outperform other event market traders over time!

For today's pick, we are buying the "No" that June job numbers will be over 300,000 for $0.56.

That's all for today, have a great Fourth of July 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.