Jim had been hired as the new executive of a large paper and office supplies wholesale company. The departing executive, who had chosen to step down, set up a private meeting with him to discuss the handover. During the meeting, the former executive handed Jim three brown envelopes numbered 1, 2, and 3 and said, “Listen, Jim, open these if you find yourself in a situation that you can’t solve yourself.”
Under Jim’s leadership, the company was doing well, but after a year, sales decreased. Jim was catching a lot of heat from his CEO and board. When he was at his wit’s end, he remembered the envelopes. He went to the desk in his office, opened the top drawer, and took out the first envelope. The message read, “Blame your predecessor.” So Jim came up with a presentation and called an executive meeting. He presented some fabricated findings and tactfully laid the blame on the previous executive.
The board was satisfied and responded favorably to his presentation. The business didn’t improve, but at least no one was bothering Jim. However, eight months later, it was discovered that the company was losing more money than ever. Having learned from his previous trouble, he quickly opened the second envelope. The message read, “Reorganize.” So Jim did just that. He proposed an elaborate overhaul of the entire company. The CEO accepted his plan.
After a year, the company ran out of all its money. The CEO was fuming. Jim became very stressed and remembered the third envelope, again hoping for a miracle cure. He eagerly opened the third and last envelope. The message read, “Prepare three envelopes.”
For months, I’ve been cautioning that the U.S. employment market is not as robust as many reports suggested. The latest revision from the Bureau of Labor Statistics (BLS) has vindicated these concerns, revealing that these reports were inflated by 818,000 more jobs than previously reported. This is the largest downward revision since 2009 (under the Obama administration), a year synonymous with economic turmoil.
This significant markdown in job numbers is not just a statistical adjustment but a clear indicator that the underlying economic health may be far more fragile than we were led to believe. As I have previously written, the overly optimistic employment reports were masking underlying weaknesses in the labor market that could have severe economic ramifications.
This revised jobs report has several implications for the broader economy. First, it calls into question the strength of the post-pandemic recovery. If job growth has been overestimated, it suggests that consumer spending, which drives two-thirds of the U.S. economy, may also be weaker than expected. This could lead to slower GDP growth or even signal the potential for an economic downturn.
The jobs revalation could have significant implications for companies that continued hiring under the belief of a healthy economy. Many businesses, not wanting to lose talent or miss out on potential hires, may have pushed forward with recruitment despite not seeing strong growth in their own operations. This optimism, driven by misleading job reports, might now wane. Companies could become more cautious, leading to slower hiring or even layoffs as the reality of a weaker labor market sets in. The illusion of strength in the jobs market is likely to dissipate, revealing more conservative hiring practices moving forward.
Additionally, the housing market, already under pressure from rising mortgage rates, could also suffer from this revelation. A weaker job market often leads to reduced demand for housing as potential buyers delay home purchases due to job insecurity or lower income growth. This could exacerbate the ongoing slowdown in home sales and put downward pressure on home prices, especially in markets that have seen significant price inflation over the past few years.
The latest jobs revision should serve as a wake-up call for all. The U.S. economy may not be as strong as you were led to believe, and the implications of this could be far-reaching. If the government was not full of misrepresentation and corruption, there is no doubt that those responsible for these job fabrications would be asked to “prepare three envelopes.” Unfortunately, that’s not the way real life works. As I’ve warned, it’s crucial to look beyond the headlines and understand the underlying trends shaping our economic future. In light of these developments, staying informed, cautious, and prepared for potential economic headwinds is more important than ever.
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at Shmuel@approvedfunding.com.
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