International Forecaster Weekly

IT'S ABOUT JOBS, STUPID!

So, another day, another government report, another drama, right?

The Labor Department’s highly anticipated jobs report for September is out, and it’s somewhat revealing.

Private-sector job growth fell short of analysts’ expectations as efforts by the Federal Reserve to slow inflation appear to be taking their toll on hiring.

The government report shows that nonfarm payrolls increased 263,000 for the month, compared to one consensus estimate of 275,000. 

The DOL says the headline U-3 unemployment rate fell 0.2 percentage points to 3.5% – as the labor force participation rate edged slightly lower to 62.3% (1.1 percentage points lower than the pandemic’s start).

But the U-6 rate, which includes discouraged (longer-term) job hunters and those working part-time who’d like full-time jobs, was almost double the headline rate at 6.7% (down from 7.0% in August).

And John Williams of Shadow Government Statistics (SGS) believes the rate is actually closer to 25%.

The seasonally-adjusted SGS rate “reflects current [government] unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994…” That estimate is then added to the BLS’ U-6 estimate.

Jeff Cox reports, “September’s payroll figure marked a deceleration from the 315,000 gain in August and tied for the lowest monthly increase since April 2021.”

Average hourly earnings rose 0.3% on the month and 5.0% from a year ago to $32.46 an hour – an increase that’s still well above the pre-pandemic level (for example, it was 3.0% annually in February 2020).

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Guest Writer | October 7, 2022

IT'S ABOUT JOBS, STUPID!

By Dave Allen for Discount Gold & Silver

So, another day, another government report, another drama, right?

The Labor Department’s highly anticipated jobs report for September is out, and it’s somewhat revealing.

Private-sector job growth fell short of analysts’ expectations as efforts by the Federal Reserve to slow inflation appear to be taking their toll on hiring.

The government report shows that nonfarm payrolls increased 263,000 for the month, compared to one consensus estimate of 275,000. 

The DOL says the headline U-3 unemployment rate fell 0.2 percentage points to 3.5% – as the labor force participation rate edged slightly lower to 62.3% (1.1 percentage points lower than the pandemic’s start).

But the U-6 rate, which includes discouraged (longer-term) job hunters and those working part-time who’d like full-time jobs, was almost double the headline rate at 6.7% (down from 7.0% in August).

And John Williams of Shadow Government Statistics (SGS) believes the rate is actually closer to 25%.

The seasonally-adjusted SGS rate “reflects current [government] unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994…” That estimate is then added to the BLS’ U-6 estimate.

Jeff Cox reports, “September’s payroll figure marked a deceleration from the 315,000 gain in August and tied for the lowest monthly increase since April 2021.”

Average hourly earnings rose 0.3% on the month and 5.0% from a year ago to $32.46 an hour – an increase that’s still well above the pre-pandemic level (for example, it was 3.0% annually in February 2020).

Job Openings vs. Hirings

In addition to today’s jobs report, there was a lot of fanfare over Tuesday’s jobs opening and labor turnover survey (JOLTS) for August.

The latest JOLTS reported a monthly drop of 10% or over 1 million job openings – to 10.1 million from 11.2 million in July.

That surprisingly gigantic decrease has since been fueling speculation of the Fed pivoting on its interest rate hiking campaign to rein in the effects of high inflation. 

But as Simon Foy writes: “[J]ob openings only really make sense when viewed in relation to hires (emphasis mine), and on that basis the number of job openings in the U.S…is still very high relative to hires.”

The chart above shows that there are about 1.7 job openings right now for every hiring. In February 2020, right before the pandemic started, that figure was around 1.2.

(From 2002 to 2020, the ratio fluctuated – generally upward, except during the Great Recession – within a range of about 0.8 to 1.4.)

Still, Foy points to several leading indicators showing that “the cycle is peaking, and the jobs market will soon start to slow.” 

Until then, he believes the Fed will remain “laser-focused on inflation.” Now, what exactly that means in terms of future rate hikes will have to remain a guessing game until the Fed’s next policymaking meeting Nov. 1-2.

But Fed Fund futures traders right now believe there’s a 80% probability the Fed will increase rates by another 75 basis points in November – to a range of 3.75%-4.0% – and a 63% chance of a 50bp hike in December.

Thirty years ago, strategist James Carville coined the term “[It’s} the economy, stupid” during Bill Clinton’s campaign to unseat incumbent president George H.W. Bush.

Three decades later, it seems apropos to drill down that quip to “It’s about jobs, stupid.”

Jobs will be the most important factor in the coming months that will tell us:

(1)  whether the economy has survived with a soft landing despite the Fed’s latest overreach; or

(2)  whether Americans households are once again suffering through the effects of a recession the Fed has wrought.