Just how strong was Friday’s jobs report? – Beragampengetahuan

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The US created more jobs in December than economists forecast . . . at least at the headline level.

But Skanda Amarnath, executive director at Employ America, has a helpful thread on underlying data that could show some hints of weakness:

Now, the most obvious caveat to the strong-labour-market narrative was weak data from the survey of US households.

Sure, the unemployment rate was unchanged from the prior month’s, at 3.7 per cent. But that masked a substantial monthly decline in the number of employed people in the household survey (down 683,000), offset by a decline in the size of the civilian labour force (down 676,000).

Prior months’ job markets also look weaker after the BLS’s usual data revisions. With those adjustments, Amarnath found that the three-month pace of job creation has declined to 174,000 per month from 206,000 per month:

To quickly summarise Amarnath’s other points:

• The prime-age employment rate has declined from its post-Covid peak, and there’s been an even steeper drop-off in prime-age full time employment

• Productivity growth has been responsible for strong GDP prints, with average weekly hours worked rising just around 1 per cent

• Nominal labour income growth has returned to its pre-pandemic levels, meaning demand-side pressure from US consumers is probably returning to normal too

Amarnath also points out that it might not be that comforting to see relative strength in the establishment survey; as Alphaville has previously covered, businesses have been responding less to all types of economic surveys since the pandemic.

He concludes that “the Fed really should not be treating this labour market as overheated whatsoever.”

Signs of labour-market cooling were noticed by Goldman Sachs as well, though it wasn’t quite as concerned. The bank dug more into the weak data underlying the household survey:

The labour force participation rate dropped by 0.3pp to 62.5%, reflecting declines across both men and women as well as foreign-born and US-born workers. Employment adjusted for the payrolls methodology was even weaker, decreasing by 753k. The difference in part reflects an increase in self-employed workers (+321k after increasing by 57k in November) and a decline in workers on unpaid leave (-160k after decreasing by 179k, sa by GS). Offsetting this, multiple job holders increased 222k. The U6 underemployment rate increased by 0.1pp to 7.1%, reflecting an increase in the number of part-time workers for economic reasons (+217k).

Its economists also noted that recent months’ job growth has been strongest in healthcare and government sectors, a trend that’s not typically seen when an economic boom is under way. (Leisure and hospitality has also been strong for months, but that’s probably more related to post-pandemic bounceback in travel than anything else.)

The bank argued earlier this week that wasn’t a recession signal, but instead the result of factors like 1) tight financial conditions, which are already loosening, and 2) industry-wide underhiring in past years, especially in healthcare.

And Friday’s report showed job creation in economically sensitive sectors. Retail, construction, tech, manufacturing and financial services all saw payrolls growth.

Cyclical hiring was also highlighted by TS Lombard’s Steven Blitz, who took a more upbeat view of Friday’s report. He did, however, group healthcare employment in a group with leisure/hospitality and retailers as examples of a “cyclical upswing” — possibly because all three were affected disproportionately by Covid-19? Anyway:

He’s also less concerned about the household-survey weakness:

The household survey gave the half-empty crowd some grist for their mill, but those numbers may just be suggesting (in the lumpy way of this survey) that a lot of people retired at the end of 2023 (household survey includes self-employment). Over time, household survey revisions tend to sync up to the payroll data, rather than the reverse.

Blitz writes that employment growth is “positive but not ‘on fire’, and the Fed will continue to take solace in what looks like a more balanced labour market in terms of supply and demand . . . The rate reflects a returning rational sense of the labour market, not accelerating fear of impending unemployment.”

In other words, all three observers agree the job market isn’t strong enough for the Fed should maintain tight monetary conditions. But going by the gap between GS’s expected cuts for next year (75bp) and what’s priced into the bond market (126bp), the debate will continue about what exactly constitutes “tight” policy.