Plenty of articles have came out reporting on the 32,000 reduction in US private employment that ADP reported. This seems bad, but the reality is far worse.

If you look at the employment changes by employer size, employers with less than 50 workers employ 120,000 less in November, whereas employers with >=50 workers 90,000 more, nearly cancelling out the losses from smaller employers.

The reason this is notable is because smaller employers are faster to respond to changes in business conditions than larger ones, for a number of reasons:

• Large businesses are generally more bureaucratic and involve annual budgets, so it can take time for layoffs to occur in response to slowing demand, whereas a small business with <50 employees don't have a long chain of management that makes layoffs a long process.

• Large businesses are required to issue advance notice of mass layoffs via WARN. Businesses with <100 employees are exempt. This further delays large businesses seeking to downsize even after they finalize a plan.

• Small businesses have less access to capital and higher borrowing costs to be able to ride out short to mid term impacts to cash flow, making layoffs necessary to manage cash flows when revenue falls. Larger companies have access to revolving credit facilities at low interest rates which addresses short term cash flows challenges.

As a result of all this, small businesses are actually a really strong leading indicator of where the labor market will go. Large businesses, while slower to react to business conditions, are historically even more cyclical than small businesses. So we are likely to see a reduction in employment at mid to large private sector firms in the near future.

Position: Lots of VGLT to bet on rate cuts and QE pushing up bond prices/yields down. Might be premature(I have no idea what numbers will show tomorrow), but I think the labor market is going to slow further in the coming year.