Monday, May 8, 2023

Scenes from the April employment report: the Fed just can’t kill the employment beast


 - by New Deal democrat

There’s no economic news this morning, so let’s take a closer look at some important trends from last Friday’s April jobs report.

As I and many others wrote, an important theme was that the deceleration in job gains continued, as shown in this graph since January 2021 (note 222,000 is subtracted so that latest average is at zero level):

The last 3 months have averaged 222,000 jobs, the lowest since the pandemic recovery began in 2020.

But on an absolute scale, in the past 40 years, an average of 222,000 jobs per month over a 3 month period has been better than about 80% of all Quarters (graph subtracts 222,000*3 so that quarterly average equivalent to last 3 months shows at zero):

So, on an absolute scale, all that has happened is that the white hot jobs growth of 2021, which slowed to red hot jobs growth in the first half of 2022, has now cooled to simply hot jobs growth.

All of which has resulted in the highest employment to population ratio among the prime age population since the 1990s tech boom (current level of 80.8% is subtracted to show as zero):

And I won’t even bother to show the current unemployment rate, which is equivalent to the lowest in nearly the past 70 years.

As I also pointed out on Friday, there was some mixed data among the leading employment sectors: temporary (gold) and residential construction (red) did decline, but manufacturing (blue) increased to a new post pandemic high:

If all three have or are in the process of rolling over, in the past 30+ years that has typically occurred many months before the actual onset of ensuing recessions:

Why is employment holding up so well in the face of the turning down of so many other indicators - not just leading indicators, but also things like industrial production or real retail sales?

I believe it has to do with employment still having a ways to go to “catch up” with the huge increase in total consumption, including consumption of services, in real terms. Here is what growth in real consumption and employment look like since the end of the Great Recession. Since generally consumption of goods (but not services) increases faster than employment, I have normalized the trend line in consumption to best show the comparison during the last expansion:

There remains a large gap between the growth in consumption, and the growth in employment to service that consumption. To paraphrase “Hotel California,” the Fed keeps stabbing the economy with their steely knives, but they just can’t kill the employment beast.