What the hell is going on with the US labor market?
A thread.
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A thread.
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US Non Farm Payrolls surprised on the upside.
The 3-month moving average in NFPs sits now at ~270k jobs, in line with the mid-2018 pace: the labor market was strong back then.
From peak job creation in 2021, the trend though is clearly down.
Most importantly...
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The 3-month moving average in NFPs sits now at ~270k jobs, in line with the mid-2018 pace: the labor market was strong back then.
From peak job creation in 2021, the trend though is clearly down.
Most importantly...
2/
...wage growth printed at almost 0.6% MoM in nominal terms.
As the chart below shows, the trend in wage growth is way too high to be consistent with 2% inflation inflation.
But why is wage growth remaining so stubbornly strong?
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As the chart below shows, the trend in wage growth is way too high to be consistent with 2% inflation inflation.
But why is wage growth remaining so stubbornly strong?
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One of the main reasons is that the supply of labor isn't coming back online: participation rate remains way below pre-pandemic levels, even when accounting for an ageing population.
If more labor supply doesn't come back, then job creation needs to dramatically slow...
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If more labor supply doesn't come back, then job creation needs to dramatically slow...
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...to slow inflation.
Yet, it seems the labor market remains pretty healthy...
...but does it really?
Let's look a bit deeper, and we'll realize there are quite a lot of interesting things going on.
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Yet, it seems the labor market remains pretty healthy...
...but does it really?
Let's look a bit deeper, and we'll realize there are quite a lot of interesting things going on.
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For one, the household job survey shows literally no jobs have been added in 8 months while the establishment survey shows 2.7 million jobs added.
Wait, what?
No jobs or +2.7 million jobs added?
The answer mostly lies in how the different surveys are run.
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Wait, what?
No jobs or +2.7 million jobs added?
The answer mostly lies in how the different surveys are run.
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The household survey counts a person holding three jobs as one employed person.
The establishment survey counts that as...3 jobs being created.
Over 700k Americans have had to get a second or third job in the last 12 months to make ends meet, and NFP double-counts them.
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The establishment survey counts that as...3 jobs being created.
Over 700k Americans have had to get a second or third job in the last 12 months to make ends meet, and NFP double-counts them.
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On top of it, the BLS keeps telling us that after the pandemic the net birth/death in the creation of new businesses is literally double (!) of what it was before.
Obviously it's not.
It's most likely due to a statistical adjustment the BLS talks about on their own website.
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Obviously it's not.
It's most likely due to a statistical adjustment the BLS talks about on their own website.
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Ok, assuming we want to take the NFP data for good without adding further criticism...where are this job actually being created?
- Leisure, catching up from C-19
- Government, education and healthcare
Where are they being lost?
- Goods & Transp
- Retail
- Construction
...
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- Leisure, catching up from C-19
- Government, education and healthcare
Where are they being lost?
- Goods & Transp
- Retail
- Construction
...
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For now, markets are obviously reacting to the NFP survey as that will inform Powell's next decision in December.
Strong nominal wage growth and a supposedly solid pace of job creation argue for further rate hikes and tough talk from JPow.
But looking forward...
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Strong nominal wage growth and a supposedly solid pace of job creation argue for further rate hikes and tough talk from JPow.
But looking forward...
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...a much softer labor market awaits and it's just a matter of when, not if.
Being early in markets = being wrong.
Hence trying to understand when the softness in labor market will materialize in NFP, how bad will it be and how to best position is important.
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Being early in markets = being wrong.
Hence trying to understand when the softness in labor market will materialize in NFP, how bad will it be and how to best position is important.
11/
Over the weekend, I'll release a free piece that looks even deeper into the state of the US labor market and assesses how and when to position for the upcoming softness
Consider subscribing to TheMacroCompass.substack.com so you'll receive it directly in your inbox: it's free
12/12
Consider subscribing to TheMacroCompass.substack.com so you'll receive it directly in your inbox: it's free
12/12
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