Pessimism about labor market 'overdone', TS Lombard's Perkins says

[Bull and Bear Symbol with Stock Market Concept.]
undefined undefined/iStock via Getty Images

U.S. recession fears have been reignited after a weak jobs report; however, the renewed concerns about the labor market are "overdone", TS Lombard's Dario Perkins said.

"Our view, however, is that the current pessimism about the U.S. labor market is overdone. We don’t think the Perkins rule will trigger, but even if it does, it would likely be a fleeting response to the policy chaos of the past three months rather than indicative of a genuine recessionary dynamic," Perkins added.

U.S. nonfarm payrolls increased 73K in July, lower [https://seekingalpha.com/news/4476512-nonfarm-payrolls-lower-than-expected-in-july-unemployment-rate-ticks-up-to-42] than the +110K consensus and more than the 14K that were added in June. The softer figures fueled speculation that the _Perkins rule—a_ real-time recession indicator based on payroll contractions—could soon trigger.

Perkins added that there is nothing fundamentally wrong about the U.S. economy. "And that means the danger of reflexivity is low, and as long as the Federal Reserve responds—and there is every indication it will—there could even be a repeat of the mid-90s, when the triggering of the Perkins rule was a blessing in disguise for the bulls."

The Perkins rule was created in 2018 and is based on Alan Greenspan’s idea of spotting recessions in real time through “data discontinuities.” It specifically uses payrolls as the indicator, defining a trigger when job losses exceed one standard deviation (about –68k).

"Looking across a broad range of indicators, we would say that post-revisions data are more consistent with broader U.S. economic performance and show a labor market that has been frozen by acute Trumpian policy uncertainty rather than an economy that is genuinely sliding into recession," Perkins added.

Perkins expects payrolls to rebound in August and September but added, recession risks are always greater when employment growth is "so tepid."

Here are some exchange-traded funds that track the benchmark S&P 500 index (SP500 [https://seekingalpha.com/symbol/SP500]): (NYSEARCA:SPY [https://seekingalpha.com/symbol/SPY]), (NYSEARCA:VOO [https://seekingalpha.com/symbol/VOO]), (NYSEARCA:IVV [https://seekingalpha.com/symbol/IVV]), (NYSEARCA:RSP [https://seekingalpha.com/symbol/RSP]), (NYSEARCA:SSO [https://seekingalpha.com/symbol/SSO]), (NYSEARCA:UPRO [https://seekingalpha.com/symbol/UPRO]), (NYSEARCA:SH [https://seekingalpha.com/symbol/SH]), (NYSEARCA:SDS [https://seekingalpha.com/symbol/SDS]), and (NYSEARCA:SPXU [https://seekingalpha.com/symbol/SPXU]).

MORE ON MARKETS

* Why I Believe We're Entering The Biggest Market Rotation In Decades [https://seekingalpha.com/article/4818456-entering-biggest-market-rotation-in-decades]
* Weekly Market Pulse: The Sound Of Silence [https://seekingalpha.com/article/4818392-weekly-market-pulse-sound-of-silence]
* The Fed Will Cut Interest Rates In September? Don't Be So Sure [https://seekingalpha.com/article/4818347-fed-will-cut-interest-rates-september-dont-be-so-sure]
* Trump says India offered to cut tariffs to zero, slams purchase of Russian oil and arms [https://seekingalpha.com/news/4490939-trump-says-india-offered-to-cut-tariffs-to-zero-slams-purchase-of-russian-oil-and-arms]
* Bessent backs Fed's independence, but says it has made 'a lot of mistakes' [https://seekingalpha.com/news/4490941-scott-bessent-federal-reserve-independence]