Super-charged Recovery


At AKRO, one of our favourite economic indicators is US non-farm payrolls. This monthly data series shows employment in the world's largest economy, adjusted to exclude seasonal employment in the agricultural sector. Historically, when the year on year rate of change[1]falls below 1% it has always been an accurate indicator of recessionary conditions, often months before a recession is officially declared.

The chart shows, in the top panel, US non-farm payroll data going back to 1985. Recessionary periods are shaded red. It is clear, from the bottom panel, whenever the Year on Year Rate of Change (RoC) in payroll data drops below 1% it has been a timely measure of the onset of recession: The recent deep recession caused by the Covid-19 pandemic being no exception. Encouragingly, April's payroll data is consistent with a dramatic economic rebound.

Given the strength of the implied economic rebound, it is no surprise that commodity prices, and share prices of economically sensitive companies/industries/countries have all rebounded. While this bodes well for the AKRO New Economies Fund, with its exposure to economically sensitive emerging markets, e.g. Russia, China, Brazil, it is potentially less favourable to those who have placed their faith in bank deposits or the bond markets. Rising inflation rates, as economies recover, slowly eroding the purchasing power of such low yielding investments.

Economic Recovery: Straight-up! source: Bloomberg/AKRO
Economic Recovery: Straight-up! source: Bloomberg/AKRO

[1] ROC definition: ROC = (Current Price - Price N Periods ago)/Price N periods ago. In June 2012, the US economy added 133k more jobs compared with 131k in June 2011, .i.e.. for June the 12 month ROC= (133,088-131,311)/131,311=1.353

Jeremy Monk
Investment Director,
AKRO investiční společnost, a.s.
Prague. 14th May, 2021



This article does not constitute investment advice or a recommendation to buy or sell any security.