Last week we were presented with a fairly cold employment report with the number of job gains being lowest in 18 months and one of the lowest readings in the last decade. The problem is not necessarily the one weak employment report – which did come with at least some bright spots including a lower overall unemployment rate – but the fact that the data has been unquestionably weak across a number of economic indicators from employment to manufacturing activity to durable goods orders (an indicator of capex intentions). In this type of environment, it becomes harder and harder to give bad data a “pass” as a one off statistic. This is especially true when we start to see weak data points being confirmed by more forward looking data, and that is exactly what we saw today in the National Federation of Independent Businesses (NFIB) survey.
Specifically, it was the small business hiring plans component that caught our attention. It came in at the lowest level in about a year and was a continuation of the sharp drop seen in the January report.
This is important because the one year change in the NFIB hiring plans indicator tends to lead year over year changes in both the unemployment rate and initial claims by about four months. In other words, the fact that small businesses are signaling a slowdown in hiring suggests we may be in for more weak employment reports in the months ahead, a prospect neither stocks nor bonds are discounting at the moment.