- 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. In particular:
- Yesterday I wrote that “I will be most interested to see if declines in manufacturing and housing under construction translate into a stall or even downturn in goods-producing employment, which has held up surprisingly well in the past year.” - This month they again increased, with no indication of any slowdown in trend.
- Whether there is further deceleration in jobs gains compared with the last 6 month average, vs. a “soft landing” stabilization, and even whether the recent increase in monthly jobs numbers signifies a re-strengthening. - This was also answered plainly with no further deceleration at all. A look back shows average jobs gains holding basically steady, with the exception of last summer, for over 1 year.
- Based on the leading relationship of initial and continuing jobless claims, whether the unemployment rate is neutral or decreasing; or whether there is further weakness. - This month’s increase completely contradicted both initial and continuing jobless claims, the unemployment rate increased again.
- Based on the leading relationship of the quits rate to average hourly earnings, whether YoY wage growth would stabilize, or decline further. - This month they increased from April’s 3 year low.
There is a common thread in the above answers: the three good results all came from the Establishment Survey, which as we’ll see below, was very strong. The one very poor result came from the Household Survey, which for the third time in four months was frankly recessionary.
Here’s my in depth synopsis.
HEADLINES:
- 272,000 jobs added. Private sector jobs increased 229,000. Government jobs increased by 43,000.
- March was revised downward by -5,000, and April was revised downward by -10,000, for a net decline of -15,000. This continues the pattern from nearly every month in the past 18 months of a steady drumbeat of downward net revisions.
- The alternate, and more volatile measure in the household report, showed an outright *decline* of -408,000 jobs. On a YoY basis, in this series only 376,000 jobs, or 0.2%, have been gained. This is not just the lowest YoY increase since the pandemic lockdowns, but with rare exception, it has always and only occurred during recessions.
- The U3 unemployment rate rose 0.1% to 4.0%, a new 2+ year high. Not only did the number of people employed decline, per the above, but the number unemployed rose by 157,000.
- The U6 underemployment rate was unchanged at 7.4%, 0.9% above its low of December 2022.
- Further out on the spectrum, those who are not in the labor force but want a job now rose 80,000 to 5.717 million, 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. These 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, but is still down -0.7 hours from its February 2022 peak of 41.5 hours.
- Manufacturing jobs rose 8,000.
- Within that sector, motor vehicle manufacturing jobs rose 3,500.
- Truck driving declilned -5,400.
- Construction jobs increased 21,000.
- Residential construction jobs, which are even more leading, rose by 3,500 to another new post-pandemic high.
- Goods producing jobs as a whole rose 25,000 to another new expansion high. These should decline before any recession occurs.
- Temporary jobs, which have generally been declining late 2022, fell by another -14,100, and are down about -450,000 since their peak in March 2022. This appears to be not just cyclical, but a secular change in trend.
- the number of people unemployed for 5 weeks or fewer rose 47,000 to 2,309,000.
Wages of non-managerial workers
- Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.14, or +0.5%, to $29.99, for a YoY gain of +4.2%. This breaks, at least for this month, the pattern that YoY growth in wages have been sliding since their post pandemic peak of 7.0% in March 2022.
Aggregate hours and wages:
- the index of aggregate hours worked for non-managerial workers rose 0.4%, and is up 1.6% YoY.
- the index of aggregate payrolls for non-managerial workers rose 0.9%, and is up 5.8% YoY. These had been decelerating since the end of the pandemic lockdowns, but have stabilized so far this year, and are close to their highest YoY pace since last September. With the latest YoY consumer inflation reading of 3.4%, this remains powerful evidence that average working families have continue to see gains in “real” spending money.
Other significant data:
- Professional and business employment rose 33,000. These tend to be well-paying jobs. This series had generally been declining since last May, but in 4 of the last 5 months have resumed their increase.
- The employment population ratio declined -0.1% to 60.1%, vs. 61.1% in February 2020.
- The Labor Force Participation Rate declilned -0.2% to 62.5%, vs. 63.4% in February 2020.
SUMMARY
This month’s report marked perhaps the strongest bifurcation yet between the Establishment and Household Surveys. Frequently they diverge, but this as if they were describing two diametrically opposed economies.
The Establishment Survey was excellent. Not only were there top-line gains, but almost all of the leading sectors of employment - construction, manufacturing, goods production generally, and even the recent laggard of professional and business jobs - all rose significantly. Aggregate hours and payrolls also rose sharply. Wage growth improved. If anything, even beyond stabilization, there appears to have been some re-acceleration in job gains in recent months compared with late last year. Only temporary jobs - which appear to be undergoing a secular change - continued to decline.
But then we turn to the Household Survey. The number employed was down, the number of unemployed up, resulting in the highest unemployment rate in over 2 years (although it has not triggered the “Sahm rule”). The number of recent job-losers also increased to a 2+ year high, but for one month (February). Both the employment population ratio and the labor force participation rate declined further. In fact, in this report employment has only grown 1.8% since March 2022 (vs. 4.8% in the Establishment Survey), and has been in a slowly *declining* trend since last summer.
At this point it is nearly certain that one of these two surveys is seriously in error. Normally that would be the Household Survey, which is much smaller and noisier. That at this point it is flatly contradicting the weekly jobless claims numbers - which are not surveys, but actual totals collected from all 50 States - also suggests that it is the Household Survey which is in error. But then we have the QCEW, which is also not a survey, but rather a census of almost all employers in the country, telling us that through Q3 of last year (its most recent report) the Establishment Survey was seriously overestimating job gains. And then we have withholding tax receipts - also not a survey, but an actual nationwide total - which over 8 months into this fiscal year are only 4.2% higher (and that’s nominal, before taking wage gains into account) than last year at the same time.
Ultimately the data in the Establishment and Household Surveys are going to resolve. That is likely to occur when some fairly massive revisions in one or the other take place. It could be a big population revision in the Household Survey, or it could be that the QCEW is going to show more substantial weakness in Q4 of last year and/or Q1 of this year, which will then be incorporated into revisions in the Establishment Survey.
I wish I could tell you that I knew. But I am afraid that we are simply going to have to wait.
