The US labor market remains pretty strong…
…or, does it really?!
Let’s have a look together.
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, wage growth printed at almost 0.6% MoM in nominal terms.
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?
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 to reduce inflationary pressures.
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.
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 (chart below).
Wait, what?
No jobs or +2.7 million jobs added?
The answer mostly lies in how the different surveys are run.
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.
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.
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, a much softer labor market awaits and it’s just a matter of when, not if.
Yet, 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.
Source: Mr. Alfonso
