Saturday, June 3, 2023

US Labour mkt in May

Traded markets (shares, bonds, commodities and currencies) tend to be moved by the latest data.  This is, in a way, logical, because new data can make you re-assess your positions.  Was the latest data point stronger than you expected.  Yes?  No?  The market adjusts its expectations, and so it increases or decreases its weightings allocated towards (long) or against (short) certain assets.

So, a stronger than expected rise in US payrolls employment in May suggested that the economy was strong, and so company profits would be better.  But, wait a bit, wouldn't a stronger economy make it more likely that the Fed would raise rates?   Except, the unemployment rate went up, so maybe that would make the Fed more cautious.  There was something for everyone in the jobs report.  The share market duly spiked up, the US dollar rose, as did bond yields and commodity prices.


I prefer to look at trends, rather than the latest monthly movements.  What are they?


  • Employment growth continues to slow.  It's still positive, but the trend is clearly down
  • The change in the unemployment rate over 6 months, which tracks the economy, except it is inverted (unemployment goes up when the economy goes down), is rising.  In fact, the little blip in unemployment over the last few months matches the mini bounce we've seen in the ISM and PMI indices.
  • The 'jobs plentiful' subcomponent of the consumer confidence index has slid to new lows, after (surprise!) a mini-spike.
  • Overtime hours didn't rise in the month, which would have been a sign of strength.  Indeed, the downward trend since February last year is still intact, though the trend levelled off during the "blip" we saw in the first few months of this year.


Conclusions:

  • The latest monthly spike in payrolls is not a sign of a strengthening economy;
  • The "blip" in the economy is starting to wane, but ... ;
  • ... it is not yet in recession.
  • Which means, given inflation still being higher than the Fed's target, that the Fed has prolly not stopped raising the Fed Funds rate.

A most interesting point in the current US business cycle.  

I show only two of the possible charts, the change in payrolls employment, which is positively correlated with the cycle, and the change in the unemployment rate, which is negatively correlated, and so has been plotted inverted.  If you are interested in the others, drop me a note in the comments.  As usual, because of some mysterious Blogger algorithm, the charts are fuzzy, and will be clearer if you click on them.






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