Employment Surprise

Michael Rudd, CFA | President, CEO and Portfolio Manager

On the first Friday of every month, the US Bureau of Labor and Statistics releases its often-followed Non-Farm Payrolls report. The report has become more critical to investors since the start of mitigation efforts in the United States in response to the pandemic and this week the results have caused some confusion. As two-thirds of the US economy is linked to consumption, the health of the US labour force is probably the most important input to understand. Expectations were for another 7.5 million jobs lost last month but the report came in with a 2.5 million gain. That’s a net 10 million “jobs” difference and is very different than what the other preliminary data that we have seen over the past 4 weeks indicated. The US has now lost 20 million jobs over the past 3 months, which has resulted in the unemployment rate increasing from 3.5% to 13.3%. The big question is, with mitigation efforts waning in the US, how quickly people will be rehired back into the workforce. This will ultimately drive consumption and consumer confidence. A quick snap back to the economy and employment increases the chance the consumer confidence will return to normal. If people are not hired back quickly, then consumption and ultimately GDP will further contract and/or the recovery will be slow. This month’s Payrolls report is probably more confusing than helpful and will be heavily debated.

  • Figure 1 presents the unemployment rate for both Canada and the US. As you can see, even with the good data from this month, the absolute number is still high.
  • Figure 2 presents consumer confidence from Europe. For the second month in a row, confidence has dropped double digits. We highlight this to link job loss and confidence given that Europe is further along in its pandemic experience.
  • This week, we read a quote from Desjardins Securities that we agreed with and thought we would share: “The third quarter will be pivotal, as it will reveal the extent to which this momentum is sustained, all under the admittedly shaky assumption that there are no other major disruptions (i.e. second wave, trade war).

“This means that” in the end we see the current situation effectively related to confidence. If return were to normal the recent financial market action could be justified. A more drawn out slow recovery would cause another change. We believe that maintaining our investment management discipline through the uncertainty is the most critical item to focus on.

Pathfinder Asset Management Ltd. | Equally Invested™
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Sources: Pathfinder Asset Management Limited

National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Pathfinder Real Fund are presented based on the masters series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Real Fund (April, 2013), and Pathfinder International Fund (November 2014).

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