Truth be told, I considered titling this blog, “The FED Threw a Recession and Nobody Came”  after the spectacular non-farm payroll number last Friday reflecting 517,000 new jobs in January.  Sure, sure, we can debate the accuracy of the number itself given the “seasonal adjustments” component, but inasmuch as every monthly jobs number is calculated the identical way, it really doesn’t impact the overall trend.   The creation of more than 500 thousand jobs in any one month is more indicative of an economic expansion — not a recession.  The “leisure and hospitality” industries hired 128,000 people in January … closely followed by “professional and business services” (+82,000) and “health care” (+58,000).   Huge numbers.  Try as the FED might, they can’t seem to crush America’s economic spirit!   They raise rates, consumers spend, and companies hire!  

Except the tech companies.  They are not hiring.  They are firing.   Apparently. 

One week ago today, Meta Platforms Inc.  Chief Executive Mark Zuckerberg announced 11,000 layoffs in November, and said the company is carefully examining its hiring needs, reevaluating projects and reducing management layers.  Apparently, high-paying jobs are an endangered species at Meta.  During the earnings call, Mr. Zuckerberg uttered the word “efficiency”  19 times.   19 times.  I guess he’s serious about efficiency.  “Our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization,” Zuckerberg said.

Got it.  Efficiency.  OK, so if 2023 is the year of efficiency (and the ‘Year of the Rabbit‘ in China, by the way), what was 2022?   The year of inefficiency?  What is the opposite of efficiency?   I googled it.   Here are a few choice words … take your pick:

 

Useless … lazy … unskilled … incompetent … ineffective. 

Ouch. 

 

Welcome to this week’s Steak House Index update.

 

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/

---

Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.  

But is the US economy expanding or contracting?

Expanding.    At the end of Q3, 2022, in ‘current-dollar’ terms, US annual economic output rose to $25.74 trillion.   Thru Q3, America’s current-dollar GDP has increased at an annualized rate exceeding 7%.   The world’s annual GDP rose to over $100 trillion during 2022.   America’s GDP remains around 25% of all global GDP.  Collectively, the US, the euro zone, and China still generate about 70% of the global economic output.  These are the 3 big, global players.

 

The objective of this blog is singular.

 

It attempts to predict the direction of our GDP ahead of official economic releases. Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.

---

Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore “fun” items of economic importance.   Hopefully you find the discussion fun, too.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.

---

 

The Blog:

I’m sure Mark Zuckerberg’s newfound obsession with “efficiency” didn’t mean to imply his people over at Meta were lazy or incompetent in 2022.   But it is interesting to note how many C-suite leaders are following his lead.  FedEx announced they are laying off more than 10% of their management staff.   CEO Raj Subramaniam’s comment, “Unfortunately, this was a necessary action to become a more efficient, agile organization.”   Over at Caterpillar, leadership commented, “In the 4th quarter, we certainly did experience inefficiencies ….”  Amazon’s CEO said it a bit differently:  they are “streamlining costs.”   But the folks over at Hershey are a bit more ebullient, because they “know that snacking has been on the rise….”   Yum.  Everyone loves chocolate!  🙂

At UPS, chief executive Carol Tome said that 2023 “… is the year of resilience.”   But even Carol was bit by the efficiency-bug:  “Specifically, we will balance efficiency with growth opportunities.”

Reading the tea-leaves, it appears that to be efficient, heads must roll.  

 

 

And while they are definitely rolling, as the graph above clearly demonstrates, there’s quite a bit of irony here:   During January of 2023, “healthcare” added more jobs than all the 2022 layoffs!   In just one 2023 month, they industry hired more workers than they fired during all of 2022.   Does this sound like a recession to you?   Not to me. 

Speaking of tea leaves, it turns out 2023 is the also the “Year of the Rabbit”!

That’s right.  2023 is the ‘Year of the Rabbit’ in the Chinese 12-year cyclical zodiac sign calendar.  Ironically, the rabbit is auspicious in that it signifies the year of hope … as in the Chinese culture the rabbit is a symbol of longevity, peace and prosperity. 

Hope is a certainly good thing, but as we all know, hope is not a business plan.  Regardless, I’m sure Mr. Zuckerberg and his cronies are hoping the Chinese prediction for prosperity is spot-on.   Because while they all aspire to be more efficient, I think what they really want is to be more profitable.  Improved efficiency may be their operating goal, but increased corporate profitability is the outcome they seek.

Perhaps even more ironic, corporate bosses and the FED seem to be of one mind here:   Actions by both seek to reduce employment levels.   I think the January employment numbers left the FED governors a bit peeved.   After all, this has been their fastest rate hike cycle ever; but so far, increased interest rates have not seriously dented the labor markets as a whole.   Sure, some industries are struggling, but overall the opposite is true:   In January, the unemployment rate fell once again, down to 3.4% which is the lowest unemployment reading since 1969 — almost 60 years ago!

Also 60 years ago,  the “modern” McDonalds restaurant was born.   McDonalds is undeniably the birthplace of burger efficiency.  And as we all know, burgernomics is founded using their globally famous Big Mac.   Mark Zuckerberg may be a recent convert to aspirational operating efficiency, but over the last 60 years McDonalds turned efficiency into an art form.   Love ’em or hate ’em — or their food — but they really set the high-bar for operating efficiency.   Perhaps Mr. Zuckerberg should spend more time studying the Big Mac than those San Francisco salad bars he frequents.  He might learn a thing or two. 

Along with all the layoff-talk, another interesting trend seems to be slowly unfolding.  To quote an article in last week’s WSJ, “America’s bosses are starting to feel bossy again.”   The article claims many executives are no longer “scrambling to retain workers.”  Quite the opposite, it appears.

 

“Executives are seizing on this moment to streamline operations

or cut projects, shedding staff that until recently

they couldn’t afford to lose.”

 

Is ‘over-staffing’ another pandemic quirk soon to become roadkill?   Is this the beginning of the end of the employee dictating salary and work conditions?   Is “remote work” dead? 

Probably not.  It’s not that binary.  However, at a high level, it does appear the dialog around “control” around workplace policies is shifting.  Slightly.  And so 2023 might be the beginning of a normalizing trend back toward an equilibrium point where far more workers return to the office to work.   The ‘bosses’ seem to want this outcome; large American city managers are heavily promoting the return-to-the-office; and, so are the office building REITS.   They are all pushing for more folks back in the traditional high rise.   And for the first time in several years, they seem to have a bit more sway in promoting that outcome. 

The chief economist at ZipRecruiter observed that layoffs were 20% – 50% higher in Q4, 2022 in the “information, transportation and warehousing” industries.  My takeaway:  It might be time to unload your industrial income properties.  I’m predicting vacancies are on the rise in 2023.   This could be a time of peak-value. 

Anyway, economist Julia Pollak over at ZipRecruiter summed it up nicely, talking about the tech biz:  “Their contraction now is largely a sign of a post-pandemic rebalancing and renormalization in the economy.”   Perhaps.  I still see a lot of conflict in the employment data, but this trend will probably get legs as this year unfolds.   And while I agree with many experts that “remote work” will remain a fixture long after the pandemic is a faint memory, I feel office building occupancy and utilization will continue to rise during 2023.   Time will tell.

Shall we head over to the steakhouses?

 

Wow … an SHI10 reading of 511!   That is super high.   This coming Saturday, there is not a reservation to be had at our pricey steakhouses in the OC … and the same is true in Atlanta and Philly.   And Dallas is almost fully booked.   Does this week’s SHI10 reading make the same economic statement as the massive hiring boom in January?   Naaaa.  We have to remember that Tuesday next week is ‘Valentine’s Day.’    If you had forgotten, this is your public service reminder.  Go get that person you love something special.   But an expensive eatery reservation might be hard to come by … unless you act fast!  

Chocolate works.   Hershey’s will be pleased too.   🙂

Here is the trend report:

 

 

The large bump this week is likely the result of Valentine’s Day.   This fact notwithstanding, a 511 definitely indicates plenty of folks have plenty of money for an opulent and expensive steak dinner.  Valentine’s day may be “special” but at almost $200 a person, chocolate is a lot cheaper than Mastros.   And clearly, by the numbers above, plenty of people are opting for Mastros.

I will be out of town next Wednesday.  Once again, no blog.  Sorry.  Instead, enjoy a few Hershey’s Kisses.  🙂

<:> Terry Liebman