The US economic recession still comes with difficulties in the job market: Dietrich

• Wall Street should still be on the lookout for a possible recession, said strategist Paul Dietrich.
• He says unemployment is worse than many seem to think these days.
• If temporary government jobs were removed from the latest jobs report, unemployment would be 4.5%, Dietrich said.

The US is on the rise, but one strategist says economic optimism will eventually come to a halt as the invisible labor weakness manifests itself.

This is according to Paul Dietrich, who warned that employment conditions are worse than analysts seem to understand.

“Eventually, the US economy will enter a recession, catching the Fed, the US administration and most economists and analysts off guard,” Dietrich wrote.

In his latest monthly commentary, B. Riley Wealth’s chief investment strategist cited that the September unemployment rate would have been 4.5% if temporary government positions were eliminated.

This figure is significantly higher than the 4.1% rate published two weeks ago, a figure that convinced Wall Street that the job market was performing better than initially feared.

Dietrich highlighted this year’s significant jump in state and local government employment, adding to the perceived strength of the job market.

In his view, the increase in these positions came after $500 billion in COVID-era stimulus programs were finally delivered to regional governments this year, who rushed to deploy these funds on new positions before the fiscal year deadline. of September 30th.

“Unfortunately, almost all of these jobs were listed as temporary, and unless these governments are willing to use their own state and local taxes to keep them hired after September 30th, most of these jobs will be lost in the coming months,” Dietrich he wrote.

This supports Dietrich’s broader argument that rising unemployment can be a clear sign of a recession. For example, temporary jobs in aid services have been trending downward year over year for the past 18 months — when that’s been true for more than three months, the U.S. has suffered a recession, he says.

Although other analysts have also examined the unemployment rate, its importance has been questioned in today’s unusual economic cycle. As unemployment rose through September, consumer spending continued to be a relentless driver of growth.

But Dietrich isn’t so sure the American consumer can stay healthy for long.

To this end, he cited an almost minimal drop in the consumer confidence index, which was below consensus expectations in September. Dietrich sees the deterioration in confidence as a sign that the consumer sector is shrinking.

He argued that the soft landing narrative fueled by a strong consumer base is temporary and is the consequence of pandemic stimulus programs that encouraged consumers to continue spending.

Given that spending drives 80% of the economy, the contraction in consumer activity bodes poorly for the current U.S. outlook, he said.