Tag: Jobs

August Jobs Report Delivers Mixed Results

Posted on by cpatches

U.S. Jobs Up. Unemployment Also Up.

Today’s Report

The U.S. jobs report for August is out, with 187,000 jobs added to the economy in August. This is slightly higher than the 170,000 economists had expected. On the other side, unemployment is up slightly, at 3.8%. This is 0.3% higher than economists had predicted. Wages increased slightly, up 0.2% month-over-month, and remain up more than 4% over last year.

About the U.S. Jobs Report

The U.S. jobs report, specifically the nonfarm payroll report, is a critical economic indicator that holds immense significance for both financial markets and policymakers. This report, typically released on the first Friday of each month by the U.S. Bureau of Labor Statistics, provides crucial insights into the health of the labor market in the United States.

The report serves as a barometer of economic health. It offers valuable data on the number of jobs created or lost in the previous month, the unemployment rate, and wage growth. This information helps economists and investors gauge the overall economic performance and can influence their outlook on future economic conditions. If job creation exceeds expectations, it can signal a robust economy, potentially leading to higher consumer spending and business investments.

This report also has a significant impact on financial markets. Stock, bond, and currency markets can experience substantial volatility on the day of the report’s release. Positive job growth can boost investor confidence and lead to stock market gains, while weaker-than-expected data can trigger market sell-offs. Additionally, the Federal Reserve closely monitors the jobs report when making decisions about interest rates and monetary policy, making it a key factor in shaping the direction of these markets in the medium to long term.

In summary, the U.S. jobs report is a vital economic indicator that provides insights into the labor market’s health and has a profound impact on financial markets, influencing investor sentiment, asset prices, and even central bank decisions. It is closely watched by economists, investors, and policymakers alike for its role in shaping economic outlooks and investment strategies.

Is the Fed Really Trying to Lower Employment?

Posted on by phoffman@channelchek.com

The Reasons High Employment Concerns the Market

Maximum employment is one of the top mandates of the Federal Reserve, so why is it trying to reduce the number of jobs available? On the surface this would seem backwards. But in economics, everything is related, intentionally slowing growth to the point where resources aren’t stressed, can provide a better balance across the Feds other mandates. These Congressional mandates are stable prices, and moderate long-term interest rates.  

Current Employment Situation

The most recent U.S. Employment Report was released on July 7th. It showed that payroll employment was still climbing during June, and 209,000 new employees were added to company payrolls. The same report showed that the unemployment rate dropped to a historically low 3.6%, and workers earned 4.4% more than a year earlier (In May, it was 4.3% more).

The markets immediately viewed these strong job gains, coupled with an acceleration of wage increases and the drop in unemployment, as foreshadowing a Fed hike in late July. And also viewed is as increasing the probability of additional tightening before year-end. Employment is high, and the labor market is so tight that employers are increasing what they have paid workers in order to attract suitable personnel.

A day earlier, the payroll company ADP released its National Employment Report, which is produced in collaboration with the Stanford Digital Economy Lab. This report also showed a strong labor market. The private sector (non-government) jobs increased by 497,000 in June. This was approximately double the strong number of new hires from the previous month.

Civilian Unemployment Rate

Source: BLS.gov

How More Jobs Translate to Stock Market Concerns

The U.S. Unemployment Rate continues to remain very low despite the Fed’s aggressive efforts to slow the economy and only a modest 2% GDP growth rate. In fact, in April unemployment hit a 50 year low at 3.4% which is just below the June level.

Employment levels in the U.S. are now a key focus of the Federal Reserve (the Fed) in its effort to slow U.S. economic growth to combat persistent inflation well above the Fed’s target. Fed officials have repeated what most market participants know, that achieving lower inflation would be difficult without addressing the increasing prices that employees are receiving for their labor. A strong jobs market pushes wages higher, which filters into higher consumer inflation.

The job market’s continued strength has been somewhat surprising in what appears to be a slowing economy, with consistently low unemployment and solid job growth. This likely reflects unusual dynamics that stem from the novel economy during the pandemic. The economy hasn’t yet balanced out after massive government stimulus, low production, and a changed sense of work among many that are still of working age.

The employment numbers this year show there are still 1.6 job openings for each person that is looking for work. Considering those looking for work and the positions open are largely mismatched, this leaves employers either bidding up what they are willing to pay to attract the right person or producing less than is demanded by the market for their goods or services. Both situations are inflationary.

There are two sides to every problem; while potential employees willing to work represent far fewer workers than there are jobs, there are fewer, of age, adults willing to participate in the labor force. The labor force participation rate now stands at 62.6%, unchanged from the previous four months. Improving labor participation would be a preferred way to address the tightness in the labor market that’s leading to wage inflation, but the Fed doesn’t have the tools to incentivize this. So it is back to raising rates, draining money from the system, and otherwise taking the punchbowl away to end the party.

Good News is Bad News

This is why the Fed is not excited about job growth and low unemployment. And if the Fed isn’t happy, the markets aren’t happy. The bond market selling off in expectation that the Fed is going to raise interest rates lowers bond prices, and the stock market is concerned on many fronts, as high rates increase costs for companies, slow purchases that are typically financed, and with each tick up in rates, bonds and C.D.s become more attractive as an alternative to stocks.

So the good news which is that almost anyone who wants a job can have one, as it turns out, leads to a chain of events that causes concern among those invested in stocks.

But while unfortunate, the Fed actions are long-term good. Inflation quietly erodes the purchasing power of financial assets. So the Fed is focused on what is driving inflation, wage inflation being chief among them.

Take Away

The job market’s continued strength and the wage growth that comes with it creates a perplexing situation for all involved. The Fed has to work to reduce employment pressures, and stock and bond market participants are cheering on bad economic news – this is perplexing for investors of all levels.  

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bls.gov/news.release/empsit.nr0.htm

https://www.cnn.com/2023/07/06/economy/june-jobs-report-preview/index.html

Should Investors Expect Ongoing Monetary Policy Tightening Through 2023?

Posted on by phoffman@channelchek.com

Is the Fed Falling Behind on Slowing the Economy?

Is the Federal Reserve’s monetary policy losing out to inflationary pressures? While supply chain costs have long been taken out of the inflation forecast, demand pressures have been stronger than hoped for by the Fed. One area of demand is the labor markets. While the Federal Reserve has a dual mandate to keep prices stable and maximize employment, the shortage of workers is adding to demand-pull inflation as wages are a large input cost in a service economy. As employment remains strong, they have room to raise rates, but if strong employment is a significant cause of price pressures, they may decide to keep the increases coming.

Background

The number of new jobs unfilled increased last month as US job openings rose unexpectedly in April. The total job openings stood at 10.1 million. Make no mistake, the members of the Fed trying to steer this huge economic ship would like to see everyone working. However, with the Bureau of Labor Statistics (BLS) reporting “unemployed persons” at 5.7 million in April as compared to 10.1 million job openings, creates far more demand than there are people to fill the positions. Those with the right skills will find their worth has climbed as they get bid up by employers that are still financially better off hiring more expensive talent rather than doing without.

This causes wage inflation as these increased business costs work their way down into the final cost of goods and services we consume, as inflation.

Where We’re At

The 10.1 million job openings employers posted is an increase from the 9.7 million in the prior month. It is also the most since January 2023. In contrast, economists had expected vacancies to slip below 9.5 million. The increase and big miss by economists’ forecasting increases in job opportunities is a clear sign of strength in the nation’s labor market. This complicates Chair Jerome Powell’s position, along with other Fed members. 

It isn’t popular to try to crush demand for new employees, but rising consumer costs at more than twice the Fed’s target will be viewed as too much.

The Fed says that it is data driven, this data is unsettling for those hoping for a pause or pivot.


The Investment Climate

These numbers and other strong economic numbers that were reported in April, create some uncertainty for investors as most would prefer to see the Fed stimulating rather than tightening conditions.

But the market has been resilient, despite the Feds’ resolve. The Fed has raised its benchmark interest rate ten times in the last 14 months. Yet jobs remain unfilled, and the stock market has gained quite a bit of ground in 2023. The concern has been that the Fed may overdo it and cause a recession. While even the Fed Chair admitted this is a risk he is willing to take, he also added that it is easier to start a stalled economy than it is to reel one in and the inflation that goes along with expansion.

So the strong labor market (along with other recent data releases) provides room for the Fed to tighten as there are still nearly two jobs for every job seeker. Additional tightening will eventually have the effect of simmering inflation to a more tolerable temperature. If the Fed overdoes it on the brake pedal, according to Powell, he knows where the gas pedal is.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bls.gov/news.release/pdf/empsit.pdf

Wage Inflation, Labor Shortages, and Who Stopped Working

Posted on by phoffman@channelchek.com
Image Credit: Mr. Blue MauMau (Flickr)

Is the Mismatch in Workers and Open Jobs Proving to Be Transitory?

Inflation has been the most bearish word for the stock and bond markets over the past year or more. Shortly after many of the supply chain issues cleared up, and the cargo ships were no longer stacked up outside of major ports, attracting scarce workers with higher pay became a growing cause of inflationary pressure. At the end of November 2022, Federal Reserve Chair Jerome Powell stated that “job openings exceed available workers by about 4 million.” That number has now grown to 4.7 million after the continued strengthening of the market for qualified labor.

This mismatch, depicted in the Fed Data below, between available positions and workers to fill them, developed a more inflationary trend. The graph depicts the mismatch of labor supply and demand and the extent that it has worsened.

When the civilian labor force is greater than employment plus job openings, the economy has an immediate capacity to fill open positions. Currently, the employment level plus job openings are at 170.5 million, while the total labor force is at 165.8 million. Thus the 4.7 million quoted earlier. There are a whopping 4.7 million more jobs available compared to people available to fill them.

The civilian labor force, the amount of people working or looking for a job, is shown below in red; the current employment level plus the number of job openings is shown in blue.

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Source: St. Louis Federal Reserve

Labor Participation Hesitancy

The pandemic has been emphasized as a cause of this not-very-transitory labor shortage, but the trends in labor demand and labor supply in the graph above indicate that demand was already outpacing supply as the US entered 2018. This was two years before the novel coronavirus hit US shores. Back then the mismatch was about one million workers fewer than jobs available before the economic disruption.

As the US began to move toward business-as-usual, news and market analysts offered many explanations for the labor shortage. These included childcare problems, health concerns, minimum wage pushback, and even a wave of new retirees.

The visual below shows the change experienced in the labor force participation rate (LFPR) for specific age groups: 20 to 24 years old, 25 to 54 years old, and 55+ years old. By subtracting the most recent LFPR from that of January 2020 we get the percentage-point change in labor force participation relative to the month just before the pandemic began impacting businesses.

When the pandemic hit, the sharpest decline in the LFPR was for workers between the ages of 20 and 24. Their LFPR decreased from 73% to 64.4% in 4 months before increasing again. However, at the end of 2022, the LFPR for 20- to 24-year-olds still hadn’t fully recovered and remained 1.7 percentage points below its January 2020 value.

This overall pattern is similar but less extreme for the other age groups. Although no age group fully recovered by the end of 2022, the 25-54 group was closest, at 0.7 percentage points below its January 2002 level. There’s been speculation older workers retired early (and permanently) during the pandemic, and the 55+ group remained 1.4 percentage points below its January 2020 level as of December 2022, with no sign of further recovery.

Source: St. Louis Federal Reserve

Take Away

The mechanisms that cause inflation are widely understood. If there is a shortage of goods because of the supply chain, sellers can ask more for the product. If the cost of producing goods or providing services increase, perhaps because of the cost of labor, the seller may try to pass those higher costs along. On the demand-pull side, if there is an abundance of currency, this increases demand for goods and services and is also inflationary.

While the Fed has been waging a fight against rising prices by removing liquidity and ratcheting up the cost of money (interest rates), the number of open jobs compared to the number of workers available to fill them has widened.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/newsevents/speech/powell20221130a.htm

https://www.bls.gov/news.release/empsit.nr0.htm

https://fred.stlouisfed.org/searchresults/?st=unemployment%20rate&isTst=1

The Fed Still Has a Long Way to Go To Reel in Wage Inflation

Posted on by phoffman@channelchek.com
Image Credit: Andrew Hudson (Flickr)

Employers Added 263,000 Jobs in November, How this Impacts Future Fed Decisions

There were many more jobs created and filled in the U.S. during November than expected. This may, on the surface, seem like a good thing for the economy, markets, and job seekers. But any expectation that the Fed is past the tipping point and is winning in the battle against conditions that increase prices will have to be curbed for a while.

The number of new hires points to unmet demand in filling positions, and the increase in wages directly adds to the cost of goods sold. Unmet high labor demand is inflationary and part of why the Fed is clear that it is not done.

Fed Chair Powell spoke last Wednesday in a lengthy address outlining the challenges that face the Fed and the avenues it is most likely to take. There is nothing in the strong November jobs report that alters what Powell has said. In fact, it may underscore the resiliency of the economy that the Fed is looking to temper. If you weren’t of the belief that the Fed would push Fed Funds beyond 5%, there is evidence that the Fed may need three 0.50% increases or more before it steps back.

Background

The Fed Chair and other Fed officials have reiterated in recent days that they are likely to lift rates and hold them at levels high enough to slow economic activity and hiring to bring inflation down from 40-year highs.

The just-released employment report for November was expected to come in far below the level reported. Digging even deeper into the numbers, it showed continued rampant hiring and elevated wage growth. The Fed had been hoping to keep a wage-price spiral at bay and get ahead of the supply-demand issues pushing wages and prices up.  

The November Unemployment Report

The headline number showed that employers added 263,000 jobs in November while the unemployment rate held steady at 3.7%. But the revised wage data in Friday’s release could concern Fed officials because it points to an acceleration in pay gains in recent months. For the three months that ended in November, average hourly earnings rose at a 5.8% annualized rate. This is a surprising increase from an initially reported 3.9% annualized rate for the three months that ended in October. Economists had expected the U.S. economy had gained 200,000 jobs last month.

At the same time, senior Fed officials have made sure it is no surprise if they lessen the size of rate increases in coming meetings. The next FOMC is the Dec. 13-14 meeting; the Fed is expected to move 0.50% rather than another 0.75%.

Most major stock market indices have traded lower, taking a bearish tone from the report and signs the Fed still is a little behind in its effort to squelch inflation-feeding activity.

Of interest to investors, the sectors with the most job gains were the leisure and hospitality and healthcare industries, both of which had been hard hit during the pandemic, and in government, where employment levels are still 2% below where they stood in February 2020.

Take Away

“To be clear, strong wage growth is a good thing,” Powell said this week. “But for wage growth to be sustainable, it needs to be consistent with 2% inflation.”

The accelerated pace of job growth in November, coupled with upwardly revised October statistics, makes clear to the markets the persistent challenge facing the Federal Reserve. The central bank has repeated that it needs to see some slack in the labor market in order for inflation to fall. This could come from reduced labor demand or increased labor supply, or both.