A Payroll Playbook to Gauge Recession Risk

By Bill Hester, CFA, CMT – Hussman Funds

With the federal government open after its longest shutdown on record, we will soon get a clear indication of how payrolls fared in September and October. The most recent data, through August, already showed a marked slowdown in job growth, and much of the alternative data released during the shutdown suggests that this weakness has likely continued.

What’s unusual about this shutdown is that, because of when the closure began and how long it lasted, investors could end up getting three payroll reports in rapid succession — including November’s, if it arrives on the first Friday of December as scheduled. That’s a lot of data to absorb over a short period. So, after digesting the headline figures on jobs gained or lost during the shutdown, it will be worth paying close attention to several underlying trends beneath the top-line numbers. The discussion below highlights several of these trends that investors may want to watch to better gauge the risks of a cooling labor market — and what rising recession odds could mean for an already richly valued stock market.