March jobs report: almost uniformly positive, making a “soft landing” the default 2024 scenario

 

 - by New Deal democrat

In the past few months, my focus has been on whether jobs gains are most consistent with a “soft landing,” i.e., no further deterioration, or whether deceleration is ongoing; and more specifically: 

• Whether there is further deceleration in jobs gains compared with the last 6 month average, vs. a “soft landing” stabilization.

• Whether the unemployment rate is neutral or decreasing; or whether there is further weakness. The recent excellent reports in initial claims suggested this rate would decline. After a contra-trend jump last month, this month the unemployment rate did decline.
• Based on the leading relationship of the quits rate to average hourly earnings, whether YoY wage growth would continue to decline slightly. It did continue to decline to a new post-pandemic low - but still above 4%.

In other words, all three focus points were as expected or better. Here’s my in depth synopsis.

HEADLINES:

• 303,000 jobs added. Private sector jobs increased 232,000. Government jobs increased by 71,000. 
•  January was revised upward, while February was revised downward, by 27,000 and -5,000 respectively, for a net of 22,000. The pattern from nearly every month in the past year, has been a steady drumbeat of downward revisions, so this mixed result is a slight positive.
• The alternate, and more volatile measure in the household report, showed a 498,000 increase. Still, on a YoY basis, in this series only 642,000 jobs, or 0.4%, have been gained. This is tied with last month for the lowest since the pandemic lockdowns.
• The U3 unemployment rate declined -0.1% to 3.8%, down from last month’s 2 year high.
• The U6 underemployment rate was unchanged at 7.3%, 0.8% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now declined -229,000 to 5.443 million, vs. its post-pandemic low of 4.925 million set 12 months ago.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. These were almost all either positive or neutral:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, increased 0.1 hours to 40.7 hours, but is still down -0.8 hours from its February 2022 peak of 41.5 hours.

• Manufacturing jobs were unchanged.
• Within that sector, motor vehicle manufacturing jobs rose by 900. 
• Construction jobs increased by a strong 39,000.
• Truck driving increased 5,100.
• Residential construction jobs, which are even more leading, rose by 5,500 to a new post-pandemic high.
• Goods jobs as a whole rose 42,000 to another new expansion high. These should decline before any recession occurs.

• Temporary jobs, which have generally been declining late 2022, fell by another 1,300, and are down about -420,000 since their peak in March 2022.
• the number of people unemployed for 5 weeks or fewer declined -137,000 to 2,189,000.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.07, or +0.2%, to $29.79, a YoY gain of +4.2%. This is the lowest YoY gain since June 2021, vs. its post-pandemic peak of 7.0% YoY in March 2022.

Aggregate hours and wages: 

• the index of aggregate hours worked for non-managerial workers increased 0.5%. This metric is now up 1.7% YoY.

•  the index of aggregate payrolls for non-managerial workers rose 0.7%, and is now up a very strong 6.1% YoY. This is 2.9% above the most recent YoY inflation rate. This is powerful evidence that average working families continue to see gains in “real” spending money.

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose another 49,000. Both leisure and hospitality and its sub sector of food and drink establishment jobs, which gained 28,300 this month, have now completely recovered from their steep pandemic downturn. As a result, I will henceforward discontinue this comparison.
• Professional and business employment increased another meager 7,000. These tend to be well-paying jobs. This series had generally been declining since last May, but in the last 4 months has resumed its increase.
• The employment population ratio rose 0.2% to 60.3%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate also rose 0.2% to 62.7%, vs. 63.4% in February 2020.

SUMMARY

This month’s report hit on nearly all cylinders, with both the Household and Establishment Surveys participating. About the only negative was the continued poor YoY performance in the Household Survey, which number is close to recessionary (but it’s the only one), as well as the punk professional and service sector gains, and the continued slide in temporary help services.

By contrast, almost all of the leading metrics in the survey were positive, or in one case neutral. Aggregate payrolls also increased sharply again, and both the E/P ratio and the LFPR participated in the advances. Manufacturing at least held steady, and construction continues its surprising strong gains in both the residential and nonresidential sub-sectors. The unemployment rate declined as anticipated by the recent jobless claims reports. The three month average of job gains was the highest in the past 12 months, firmly halting the recent decelerating trend. Even average hourly wages for nonsupervisory personnel, which continued to decelerate YoY, remain high nominally, and probably were close to unchanged for the month.

In sum, this month’s report was very much consistent with a “soft landing” scenario, which must be regarded as the default outcome at this point.

Decline in continuing claims, stability in initial claims suggest downward pressure on the unemployment rate

 

 - by New Deal democrat

Initial claims in the last week rose 9,000 to 221,000, while the four week moving average increased 2,750 to 214,250. With the usual one week lag, continuing claims declined 19,000 to 1.791 million:

On the more important YoY% basis for forecasting purposes, initial claims are up 2.3%, while the four week average is down -4.5%. Continuing claims are still up, by 5.1%:

The important takeaways are that the four week average is still giving a positive signal, while the YoY% change in continuing claims is the lowest increase since the beginning of March 2023. The net is a slightly positive continuing signal for economic expansion.

With tomorrow’s jobs report, including the unemployment rate, we’ll get the “official” monthly update to the Sahm rule. Since initial (and continuing) claims both lead the unemployment rate, here’s that updated forecast.

On a monthly basis, initial claims were down -6.0% for March. Continuing claims were higher by 6.7%. This suggests downward pressure on YoY comparisons in the unemployment rate in the next few months:

On an absolute basis, initial claims are down significantly since last summer, while continuing claims have been stable. This likewise suggests either downward pressure on the unemployment rate to 3.7% or even 3.6%, or at worst stability at 3.9%:

The forecast is that the Sahm recession rule is not going to be triggered in the months ahead. Additionally, per my posts earlier this wee, tomorrow I expect to see a continued decelerating trend in YoY wage growth. 

Does consumer sentiment correlate with the real economy?

 - by New Deal democrat

No big economic news today, so let me update a correlation with information from last Friday’s personal income data. To wit, is consumer sentiment about the economy tied to any real metric? With a lot of noise, it does appear to be correlated.

The University of Michigan has been measuring consumer sentiment for over half a century. The last 45 years are available on FRED. The below graph compares this with real disposable personal income per capita. Basically, what we are looking for is, if people have more (or less) money to spend on things other than necessities, is their feeling about the economy better (or worse)?

Both data sets, but especially consumer sentiment, are very noisy on a monthly basis, so the below graph averages both over a quarter:

While there is certainly not a 1 to 1 relationship, and the YoY% change in real disposable income can vary widely with tax law changes, but over the longer term it is pretty clear that both move in the same direction, and more or less at the same turning points.

Now here is the same information zoomed in over the past 5 years through the end of the 4th quarter of last year:

Again, far from a 1 to 1 relationship, but (aside from the stimulus quarters) both have moved generally in the same direction at the same time.

Finally, let’s take the last 10 years and show the same data monthly:

I wanted to include this last graph for two reasons. First, it does show the increasing partisanship of consumer sentiment, with a notable tick up right after Trump’s election at the end of 2016, and with the exception of the 2021 stimulus months, a huge decline after Biden took office in 2021. Second, it picks up the substantial increase in the last two months. Under the circumstances, it should be no surprise that Biden’s poll numbers have recently improved.

February JOLTS report: soft landing-ish? - except for a noisy jump in layoffs

 

 - by New Deal democrat

The JOLTS report for February showed stabilization or slight improvement to all but one of its components, generally suggesting, well, stabilization in the overall jobs market.



Starting with the monthly changes, job openings (blue in the graph below), a soft statistic that is polluted by imaginary, permanent, and trolling listings, increased 8,000 from a sharply downwardly revised January number to 8.756 million, over -100,000 lower than where we thought we were in January. Actual hires (red) rose 120,000 from a slightly upwardly revised January to 5.818 million. Voluntary quits (gold) rose 38,000 to 3.484 million from a slightly downwardly revised January. In the below graph, they are all normed to a level of 100 as of just before the pandemic:

All of these are slightly off their lows from the last quarter of 2023. Perhaps most significantly, while quits are 0.7% higher than they were at the beginning of 2020, actual hires are still -3.0% below the level they were at just before the pandemic hit.

Meanwhile, for the month layoffs and discharges (blue in the graph below) rose sharply, by 128,000 to an 11 month high of 1.724 million:

This is out of sync with the recent decline in more timely, and leading, weekly initial jobless claims (red, right scale). This is likely just noise, but it certainly helps explain last month’s jump in the unemployment rate.

For a more historical perspective, the below graph norms the rates of hires, quits, and layoffs and discharges to 100 as of this month’s readings, and shows their record in the 20 years before the pandemic:

This shows that actual hires and quits remain at levels better than at any time in the 20 years prior to the pandemic except for 2018-19. And layoffs and discharges are lower than almost any time during that pre-pandemic period. 

Finally, I have noted for a number of months now, since the quits rate (blue in the graph below, right scale) tends to lead average hourly earnings (red), it is worth noting that although the quits rate did not decline in February, it remans at its lowest level in 6 years, thus suggesting that the trend of deceleration is continuing:

This implies that average hourly earnings, which tied its post-pandemic low on a YoY basis in February, will likely decelerate further in coming months, if not necessarily this Friday.

Monthly data starts out with slightly positive news in manufacturing, slightly negative in construction

 

 - by New Deal democrat

As usual, the new month’s data starts out with information on manufacturing and construction. To repeat what I have said often recently, these are the two sectors I am paying particular attention to for forecasting purposes this year.

The ISM manufacturing index has been a good leading indicator in that sector for 75 years. The difference over time, especially the last 20 years, is that manufacturing makes up a smaller share of the total US economy. As a result, even though it had been in contraction for the last 16 months, to levels that before 2000 would always have meant recession, that didn’t happen in 2023.

Notice I said “had been.” Because in March, for the first time since late 2022 the total index rose above its equipoise point of 50, to 50.3. Additionally, for the second time in three months the more leading new orders index surpassed that level, to 51.4:

Even though this data is just barely expansionary, it is probably the best news from the manufacturing sector in over a year. 

Turning to construction, for the second month in a row total construction spending (dark blue) declined, by -0.3% in February, from their all-time nominal high in December. On the other hand, the more leading residential construction component (light blue), rose 0.7% nominally, to an all-time high:

Adjusted for inflation in construction materials (red bar in the graph below), which rose 0.9% in February, however, both total and residential construction spending declined in real terms for the second month in a row:

This isn’t enough yet to call a change to a downtrend, but it does at least suggest the uptrend may have ended.

 

Taken together, we have slightly positive news in manufacturing and slightly negative news in construction to start the month.