The Non-Farm Payroll numbers (NFP) spooked the equity markets on Friday with the DJIA off nearly -0.5% and the S&P by -0.3%. For the week, the table shows solid gains for the tech heavy Nasdaq and for the small cap Russell 2000. The far right column shows year-to-date gains at a significant rate but not quite rivaling those posted in 2024.
The consolidated reporting charts are for informational purposes only and should not replace the official reporting made available by each index, custodian, market and/or security.
Dr. Robert Barone
While Nvidia and Microsoft saw some price erosion, the other five of the Magnificent 7 saw rising share values with Alphabet (GOOG) up more than 10% for the week and closing at an all-time high. For the week, Tesla rose more than 5% and Apple was up more than 3% (see table).
The consolidated reporting charts are for informational purposes only and should not replace the official reporting made available by each index, custodian, market and/or security.
Dr. Robert Barone
Jobs, Jobs, Jobs!
The specter of the jobs report overhung the financial markets all week, with the expectation of a “disappointing” jobs report growing by the day. The fact that Nonfarm Payrolls (NFP) only officially grew +22K in August (the consensus view was +75K), while discouraging, wasn’t really shocking as labor market indicators have all shown weakness.1 To wit:
- ADP reported 54K net new jobs in August, about half as many as the 106K they reported for July.2 The market consensus expectation was 68K, so lower than that sobering expectation. By sector, leisure/hospitality led the way at +50K, and construction added +16K. But several sectors saw job losses including Trade, Transportation, Utilities (-17K), Education/Health (-12K) and Manufacturing (-7K).
- The JOLTS (Job Openings and Labor Turnover Survey) showed up with a significantly diminished number of job openings of 7.18 million.3 Wall Street’s consensus was 7.4 million, so, a rather large miss. To show the growing weakness, there has only been one other time since the end of 2020 that job openings have been lower than 7.2 million.
- Private sector jobs were weak in the May-June period (as seen from the combined -258K downward jobs revision last month), and, per more complete estimates, job creation earlier in the year has been weaker than the original reports.
- Danielle DiMartino Booth, a respected economist and former special assistant to the Dallas Fed President, indicated in an interview with economist David Rosenberg in late August that she believed there was a 67% chance that June’s Non-Farm Payroll (NFP) would be revised down. That forecast proved correct; the revision was -13K per the September 5th BLS report.
- Fed Governor Waller, in a speech on August 28th to the Economics Club of Miami, indicated that he saw a labor market that is rapidly deteriorating with private sector payrolls now contracting, and little evidence that tariffs will reignite inflation.4 The August NFP numbers proved that foresight was correct. This is significant since Waller is a voting FOMC member.
- In the ISM Manufacturing Survey, the Employment Index, at 43.8 in August (43.4 in July) sits significantly in contractionary territory (50 is the demarcation line between expansion and contraction). And 63% of respondents to the University of Michigan’s Consumer Sentiment Survey, near a record high, believe that unemployment will be higher in the ensuing 12-month period.5
- Challenger Gray and Christmas reported that layoff announcements jumped 39% in August from July levels to nearly 86K (up from 62K in July), the worst reading since the Pandemic. And their hiring announcements (1,494 August, 3,200 July, 3191 June) were the worst readings since the Great Recession. According to DiMartino-Booth (The Daily Feather – From Portnoy to Payrolls,” September 5, 2025) hiring announcements for the June-August period averaged nearly 35K in the 2012 to 2024 period.
The Coming Change in Fed Policy
In his address to the Fed’s Jackson Hole Symposium in late August, Fed Chairman Powell hinted at a change in Fed policy emphasis. And, after August’s NFP report, it appears that the Fed, at its mid-September meeting, will be switching its emphasis from its inflation mandate to its employment mandate. Governor Waller emphasized that view as noted earlier. While inflation will remain a concern, the year/year inflation rate is less than 3% (2.7% as of July) and, the fall in rents over the past year (35% weight in the CPI), which enter the inflation calculation with a near 12-month lag, and the more recent fall in food prices (7% weight) imply that inflation will approach the Fed’s 2% bogey with little need to continue restrictive monetary policy.
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Rate Cut on Deck
The market odds of a rate cut at its September 16-17 meeting stand at 100% as of this writing (September 5th). The only question is whether it will be a 25-basis point cut (88.2% odds) or a 50-basis point cut (11.8% odds). Our view is that a 50-basis point cut would be more appropriate given that short-term interest rates remain significantly above the Fed’s own definition of neutral (3%) and the growing weakness that has emerged in the labor market over the past couple of months. But the odds of the larger 50-basis point cut are quite low, especially since such a cut would appear to be caving to White House pressure thus compromising the Fed’s independence.
Job Count Was Negative
In past blogs, we’ve discussed the automatic add-on of jobs to the NFP report via the BLS’ Birth/Death (B/D) model. To reiterate, the NFP Survey does not include small businesses (which are said to be the “heart” of the American economy). So, in the 1990s, BLS developed a trend-line model hoping to capture small business activity. Unfortunately, it appears that the model ignores the business cycle. It is unlikely that small businesses would be adding jobs as the economy slows down and Recession becomes a significant probability. Yet, for August, the B/D model added +96K jobs to the NFP estimates, clearly out of thin air. In other words, the actual count was -74K (the +22K reported number -96K from the B/D model) (Rosenberg Research, Labor Does Not Have Its Day, September 5, 2025).
Other Data Points
There are other concerning data points. Challenger, Gray and Christmas reported that layoff announcements jumped 39% in August from July levels to nearly 86K, up from 62K in July and the worst reading since the Pandemic. The Challenger hiring announcements, too, were the worst since the Great Recession (1,494 for August, 3,200 for July, 3,191 for June). According to DiMartino-Booth, hiring announcements for the June-August period averaged nearly 35K in the 2012 to 2024 period (The Daily Feather – From Portnoy to Payrolls, September 5, 2025).
Final Thoughts
Equity markets have continued to march ever higher, even while the economy has cooled. Friday’s negative NFP data will likely persist for the remainder of the year. Of concern for equity investors is the amount of borrowed money that is chasing the equity markets. The chart shows the rise in margin borrowing since late 2023. Any equity market weakness will be compounded by increased selling pressure from those on margin.
Debit Balances in Customers’ Securities Margin Accounts
Conference Board
The jobs report disappointed. ADP’s +54K for August was about half of their July report. The JOLTS indicated that job openings have shrunk with a number hardly seen in the past five years. And layoff announcements, per Challenger, were the highest since the Pandemic.
Prior to Friday’s (September 5) NFP report, Fed Governor Waller noted a weakening labor market, and with indications that upcoming inflation reports are likely to be moderate, at its September meetings (16th and 17th), it is a near certainty that the Fed will be shifting its emphasis to its employment mandate. That means rate cuts ahead! The only remaining unknowns are the rate cuts size and frequency. Our view is that a 50-basis point cut is appropriate from a pure economics viewpoint. But we note that the Fed’s independence issue (i.e., badgering from the White House) may play a role here. A 25-basis point rate cut is a sure thing. Because the more appropriate 50-basis point rate cut would appear to be caving to political pressure, it has less probability.
Robert Barone, Ph.D.
(Joshua Barone and Eugene Hoover contributed to this blog.)
Robert Barone, Joshua Barone and Eugene Hoover are investment adviser representatives with Savvy Advisors, Inc. (“Savvy Advisors”). Savvy Advisors is an SEC registered investment advisor. Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy.
Ancora West Advisors, LLC dba Universal Value Advisors (“UVA”) is an investment advisor firm registered with the Securities and Exchange Commission. Savvy Advisors, Inc. (“Savvy Advisors”) is also an investment advisor firm registered with the SEC. UVA and Savvy are not affiliated or related.
References:
2 https://finance.yahoo.com/news/labor-market-adds-just-54-141822900.html
4 https://www.federalreserve.gov/newsevents/speech/waller20250828a.htm