- by New Deal democrat
My question over the past year has been whether “decleration” would turn into “deterioration.” For a “soft landing,” deceleration would need to end, and the numbers stabilize, vs. continuing to deteriorate towards an actual downturn.
The verdict this month was mixed. On the employment side, YoY job gains have been relatively stable for the past six months, as has the three month average. But on the unemployment side, there were a number of poor readings at 3+ year highs. Additionally, real aggregate payroll growth shows continuing signs of a marked slowdown.
Below is my in depth synopsis.
HEADLINES:
- 151,000 jobs added. Private sector jobs increased 140,000. Government jobs increased by 11,000. Noteworthily, federal jobs decreased -11,000. The three month average was an increase of +200,000.
- The pattern of downward revisions to previous months, which was broken last month, resumed ever so slightly this month. December was revised upward by 16,000, while January was revised downward by -18,000, for a net decrease of -2,000.
- The alternate, and more volatile measure in the household report, showed a decrease of -588,000 jobs. On a YoY basis, this series increased 2,294,000 jobs, or an average of 191,000 monthly.
- The U3 unemployment rate rose 0.1% to 4.1%. Since the three month average is 4.067% vs. a low of 3.733% for the three month average in the past 12 months, or an increase of less than 0.4%, this means the “Sahm rule” remains off the table.
- The U6 underemployment rate rose sharply, by 0.5%, to 8.0%, its highest level since October 2021, and 1.6% above its low of December 2022.
- Further out on the spectrum, those who are not in the labor force but want a job now also rose a sharp 414,000 to 5.893 million, the highest number in over three years, vs. its post-pandemic low of 4.925 million in early 2023.
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. This month they were generally positive:
- the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.2 hours to 40.8 hours, This remains down -0.7 hours from its February 2022 peak of 41.5 hours, and is tied with last May and December for the highest reading over the past 12 months.
- Manufacturing jobs increased 10,000. Nevertheless this series is firmly in decline, as the three month average is the lowest since mid year 2022.
- Within that sector, motor vehicle manufacturing jobs rose 8,900.
- Truck driving decreased -1,900.
- Construction jobs increased another 19,000.
- Residential construction jobs, which are even more leading, rose by a mere 100 to another new post-pandemic high.
- Goods producing jobs as a whole increased 34,000, and made their first post-pandemic new high since last September. This is especially important, because these typically decline before any recession occurs. On a YoY% basis, these jobs are only up 0.4%. Nevertheless, only during the 1985-86 slowdown and for 3 months during the 1990s and 2000s have manufacturing jobs had this anemic a YoY increase without a recession occurring.
- Temporary jobs, which have declined by over -550,000 since late 2022, declined by another -12,300. But this month remained above their October 2024 low, so this may still suggest that the bottom in this metric is in.
- the number of people unemployed for 5 weeks or fewer rose 47,000 to 2,337,000, vs. its 12 month high of 2,465,000 last August.
Wages of non-managerial workers
- Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.3%, to $30.89, for a YoY gain of +4.1%, the highest in three months, but right in line with its average YoY% gain since last April. Importantly, this continues to be well above the 2.9% YoY inflation rate as of 3.0% last month.
Aggregate hours and wages:
- The index of aggregate hours worked for non-managerial workers rose 0.2%, and is equal to its post-pandemic peak set in December This measure is also up 1.1% YoY, right in line with its average for the past 12 months.
- The index of aggregate payrolls for non-managerial workers rose 0.4%, but is up 5.1% YoY, slightly above its average YoY rate in the past 12 months. On the other hand - importantly - adjusted for inflation this series will probably only be up 0.3% +/-0.1% since last September, indicating at least a slowdown in the ability of households to increase consumption.
Other significant data:
- Professional and business employment declined -2,000. These tend to be well-paying jobs. This series has been down YoY since September 2023, and is now -0.4% YoY, which in the past 80+ years - until now - has almost *always* meant recession.
- The employment population ratio declined -0.2% to 59.9%, vs. 61.1% in February 2020.
- The Labor Force Participation Rate decreased -0.2% to 62.4%, vs. 63.4% in February 2020.
SUMMARY
This was a mixed but generally weak report. While the number of net jobs increased, and also increased in most of the leading sectors, most importantly at present in residential building construction and goods production as a whole, the numbers were not strong. The big weakness was on the unemployment side, where the unemployment rate, underemployment rate, number of newly unemployed, and those not in the labor force who want a job all increased sharply. The employment to population ratio and the labor force participation rate also declined.
Hours worked rose, but not by much; and both hourly wages and aggregate payrolls likely did little better than keeping even with inflation, although we won’t know that for sure until next week. Most concerning is the likely slowdown in aggregate real payrolls in the past five months.It isn’t negative, but it could indicate that a peak is forming.
So again, the verdict is “positive but weak.”
