The following article is based on our recent Smart Macro podcast, State-Level Layoff Surge, with Financial Sense Wealth Management CIO Chris Puplava.
The US economy is in the midst of a “reflationary acceleration” with the S&P 500, Dow, and Nasdaq all sitting at or near record highs. Today we explore a few key charts and trends that are likely to play a significant role for the market and economic outlook over the next few months.
State Data Shows Steep Rise in Unemployment
One indicator that Puplava keeps on his dashboard for assessing the health of the US economy is the number of states with rising unemployment rates, which he considers a leading indicator of economic downturns. Currently, it is raising a potential red flag on the health of the jobs market as 69% of US states show rising U3 unemployment rates above their 2-year average, marking the highest level outside of a recession.
U3 unemployment, also known as the official unemployment rate, is the most commonly reported and widely watched measure of unemployment in the US. It is calculated by the Bureau of Labor Statistics (BLS) and represents the number of unemployed individuals who are actively seeking employment as a percentage of the total labor force. In the chart above, Chris Puplava shows two key trends: the percent of states with rising U3 unemployment rates above their 2-year average (in blue) and their 3-year average (in red).
See related: Leading Indicators for Inflation Picking Back Up
To put this current data and chart into perspective, Puplava looks back at the mid-80s and mid-90s, periods characterized by soft landings or a deceleration in growth without a material rise in unemployment. During these periods, the percentage of states with rising unemployment did not cross the 50% threshold.
Time will tell if this state-level look at unemployment trends is signaling an important shift in the US jobs market and the economy as a whole but, for now, Puplava says this data bears watching.
US on Track to Spend Another $6 Trillion in 2024
The US government has been spending money at an unprecedented rate, with the national debt rising by approximately $1 trillion every 100 days. Given the large decline in leading economic indicators for most of 2023, some argue that this aggressive spending prevented a recession from materializing, especially since this level of spending typically only occurs in the context of a major economic downturn or financial panic.
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So far, for fiscal year 2024, which runs from October 2023 to October 2024, the US government has spent $2.12 trillion “to ensure the well-being of the people of the United States,” as it states on the US Treasury’s fiscal data website.
Last year, in fiscal year 2023, the government spent a whopping $6.13 trillion. Given the $2.12 trillion already spent in 2024, the US is on track to spend 10% more this year than last. That is, if there aren't any reductions to spending plans between now and this October, the US government is set again to surpass $6 trillion in spending for 2024.
During the 2020 Covid crash and economic downturn, the US government immediately responded by sending stimulus checks directly to consumers as a way to boost spending and keep jobs steady. If we are seeing a potential turn in the jobs market currently based on the state-level U3 data, it may be much more difficult this time around to provide such stimulus directly to consumers.
This could be an important factor when it comes to the outlook given that US consumer spending accounts for around 70% of all economic activity.
Market Liquidity and the Treasury's Cash Account
Another indicator that Puplava discussed is the Treasury's cash account at the Federal Reserve, which stood at $1.8 trillion in 2021. This account has the potential to inject massive liquidity into the economy and markets, but the direction in which this liquidity flows remains uncertain. Puplava likens this situation to potential versus kinetic energy, where the liquidity is currently untapped but could significantly impact the markets once set in motion.
As of now, the Treasury's cash account stands at around $767 billion. Puplava speculates that the Treasury may inject this money into the market to keep it afloat leading up to the November elections. This move could create a bullish tailwind for the markets, even as other indicators, such as rising state-level unemployment, point to a potential shift in the underlying economy.
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To listen to this full podcast interview, see State-Level Layoff Surge for audio (starting at the 33:46 mark).
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