With consumer prices still high and a seemingly strong labor market, it is inevitable that the Federal Reserve will raise interest rates again in September.

The big question: how much?

It depends on the economy.

Washington and Wall Street may be arguing over whether or not the US economy is technically in recession. But on Main Street, the story is a little different. A recent poll found that 58% of Americans believe we are already in a recession.

Certainly, no one wants a recession. And that’s good news when people are working. But is their work paying off?

Multiple jobs and falling wages

Do you know someone who has more than one job? I certainly do. In fact, I’m one of them, with both my medical practice and my full-time job here at Investing Daily.

Also, in my medical practice, I know several full-time workers who have more than one job. My partners and employees, as well as many of my patients, all have extra jobs or side businesses. Closer to home, I have a neighbor who teaches high school full-time and who also gives private lessons to students.

So while Friday’s jobs report delivered a surprisingly strong headline — 528,000 new jobs created — the story itself is a bit murky. Specifically, there are differences in the data provided by the establishment survey and the household survey.

In fact, as I will describe below, the number of job holders is on the rise. The Fed and anyone else making decisions based on employment data should consider this carefully.

Where it all comes together is in the most recent Consumer Price Index (CPI) figures, which show that real wages have fallen over the past 16 months.

A bit of context

The “employment figures” widely quoted by the media come from two data sources: the household survey and the payroll survey, also known as the establishment survey. The data is combined to form the full document, the employment status report. You can get the details on how it all comes together here.

There are very clear differences between the two surveys, ranging from how the data is collected to how it is interpreted. There are also seasonal adjustments to consider for both surveys, as well as two very important but underestimated facts:

  1. The household survey, which measures non-institutional employment, including the self-employed and agricultural workers, is a broader measure from which the national unemployment rate is derived. This survey interviews 60,000 eligible households per month. Here, multiple job holders are counted once.
  2. The establishment survey (wage survey) reports data on non-agricultural employees and institutional data (large employers). This survey includes “approximately 131,000 companies and government agencies, representing approximately 670,000 individual worksites. Unlike the household survey, howeverthe payroll survey separately counts each job held by the same individual.

So here’s what happens: Suppose you work for a city agency or corporation, but need extra money to pay for your child’s college. So you get a side job at Starbucks. In the salary survey, you are counted each time you add a new job. In the household survey, you are counted only once.

Break down the numbers

In the June report, the household survey (red line) shows a weaker labor market than the establishment survey (green line).

Source: zerohedge.com

In fact, the striking difference between the two surveys dates back to May. Since then, the household survey has stabilized, while the establishment survey has continued to increase. This suggests that many of the new jobs reported in the establishment survey are likely to be second and, in some cases, third jobs held by the same people.

Source: Michael Every – Rabobank, zerohedge.com

Now consider the fact that full-time and part-time jobs have declined since March, while the number of people working multiple jobs has increased.

In other words, as the number of people working has stabilized, those who are still employed or looking for work hold more than one job, which could explain why there are so many new jobs in the establishment – a person counted several times.

This matters, because if the Federal Reserve raises interest rates more aggressively than expected in September (based on its perception of the establishment survey while ignoring what the household survey says), what could be a shallow recession could easily turn into something worse.

This is because the system has little wiggle room. This is due to a simple fact: those who are ready to work already have several jobs. Moreover, according to the July CPI report, their salaries are not keeping up with inflation and have not done so for more than 16 months.

If this continues, consumer spending will likely slow. This means that even though we are not currently in a recession, we could soon tip into a recession.

The Fed and the bond market are at odds

At first glance, we have good news: more people are working and inflation is slowing. But closer analysis of the data suggests inflation may be slowing because more people are forced to hold multiple jobs and their efforts are not paying off, meaning they are spending less.

Of course, the bond market expects a continuation of the situation and an eventual resolution via a recession.

Consider this: Under normal circumstances, such a dramatic increase in new jobs would cause bond yields to rise. This is because rapid wage growth is inflationary.

Still, bond yields fell after the latest jobs news. More specifically, the US 10-Year Bond Yield (TNX) fell below 2.8%.

Additionally, yields appear to be falling further in response to flattening CPI numbers.

Even more interesting is the fact that bond yields plateaued very close to the point where the divergence between household and establishment surveys started to appear, making the bond market pretty smart.

Now, since bond yields are tied to major commercial interest rates such as mortgages and auto loans, the effect of this move remains difficult to gauge at this time. But I closely watch the most visible part of the stock market tied to bond yields, homebuilders.

Remember that the bond market hates inflation. Still, a drop in yields suggests that bond traders are expecting a significant economic downturn. This is in direct contrast to the Federal Reserve, which is clearly still in inflation-fighting mode.

But the actions of homebuilders, like those of the SPDR Homebuilders ETFs (NYSE: XHB) obviously attract money. Note the trough of this sector in mid-June, a fact I pointed out was possible in my Stocks to Watch article of June 23, 2022.

As of this writing, XHB is up over 27% from its all time low. Additionally, the XHB bottom came just a few weeks after the TNX top.


The price action of homebuilder stocks and Treasury bond yields suggests that stock and bond markets expect the Fed to end its tightening cycle sooner than it says.

Indeed, reports on the CPI and the employment situation suggest that inflation is slowing and that the labor force has reached its limit. If these trends continue, the odds of a real recession – not just a “technical” recession – will increase.

Stock and bond markets are already pricing in a change in the upward trend in interest rates, as the Fed will eventually be forced to abandon its fight against inflation to fight a recession.

Don’t expect the Fed to back down anytime soon, as it is still behind the curve. But don’t be surprised if he starts softening his rhetoric much sooner than mid-2023, which is the consensus.

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