Is Apple The Next Netflix? Plus Why The Job Market Is Broken
Michael Kramer and the Clients of Mott Capital own Netflix
Apple Vs. Netflix
I’m not going to spend much time on Apple tonight because I’d like to see how it trades tomorrow, and then expanded on the topic. But the service revenue growth was very impressive. But I shall tease with this. How much would Apple be worth if it traded with a Netflix or Amazon like valuation? It sounds crazy yes, but what if the key to Apple’s future isn’t the iPhone, but the content the iPhone can provide. Because as I said to my friend today at lunch prior to the Apple report, everything that is happening today is on the smartphone. I can run my whole business on my smartphone, and nearly all of my content for entertainment or web browsing is on the phone. If Apple should happen to own some of that content or charge a fee to access it, as service revenue would indicate, then that may be a huge growth opportunity and worth a higher earnings multiple.
There will be a lot of economic data over the next three days, ADP Private Jobs and FOMC tomorrow, then PMI Services and ISM non-manufacturing on Thursday, and BLS Jobs on Friday morning. Seems like plenty of economic data to get the markets rising of falling.
We have been talking about this for some time, and since ADP only reports once a month, it has taken almost a year. But it seems to be pretty clear now that ADP job growth is starting to accelerate on a y/y basis, and the chart suggests we are beginning to make the “U” turn higher.
The BLS job number is also starting to turn higher, on y/y basis as well.
Broken Job Market
Fundamentally, I still think there is something wrong with the labor market, and what I find most curious, is that for the time since the 1940’s, the labor participation has been falling, as the unemployment is falling. It is clear as day in the chart below that since the 2008 recession the u3, u6 measures of unemployment, and the labor participation rate are falling together. It mildly happened after the 2000 recession, but not like the most recent period.
If the unemployment rate is falling, then more people should be working, and that should mean the participation rate should be rising.
95 Million Americans Not In Labor Force
The issue comes from the fact that the population growth in this country is exceeding that of job creation, and the chart below shows that, giving us our 95 million Americans, not in the labor force.
It would tell me, that the low labor participation rate is not because of a flood of people retiring, is because there are people who still can’t find employment.
Stable Unemployment Rate
That is why I also still believe we will continue to see job growth in coming months and year, without seeing the unemployment fall below much 4 percent. As more jobs are created, more people will join the labor force and start looking again or start working on an “on the books” capacity. It may even cause the unemployment rate to rise.
Not Enough Job Growth
The next chart illustrates just what I am talking above. It takes the change in the civilian labor vs. the prior year, divided by the total noninstitutional civilian labor force. It shows that in 1978, the number of jobs created represented nearly 2 percent of the population, while today it is merely three bps.
We care about all of this stuff because the Fed sets monetary policy off maintaining full employment, and inflation.
There is also still a long way to go for wage growth to rise to a level of concern.
I doubt we find out the answer to any of this scenario in this week’s reports. But it is something to think about, and something I have been tracking since early 2016 when the unemployment rate was around 4.9 percent and I was even a more terrible writer than I am now. 🙂
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