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Range Break in Employment Measure

CAMS Weekly View from the Corner – Week ending 6/9/2023

June 12, 2023

In our previous edition we delved into the general employment market landscape. Per the general narrative, in particular post BLS employment report just over a week ago, consensus seems to believe the job market is very strong without any chinks in its armor.

One number – the BLS new jobs created – is often viewed as the end-all-be-all for the employment landscape but as shared last week there are many measures to view in order to get a better sense of what is truly occurring in the labor market.

We concluded it is not as strong as the consensus view offers and yet not as weak as some resoundingly assure us it is.

This past week we had the Weekly Unemployment Insurance Claims updated as is customary.  We shared this metric previously but are going right back to this in light of its behavioral change.  What had been a long standing range – sub to low 200,000 new Claims per week which is very low – elevated to a new range in recent months to the mid-200,000 area.  As of the most recent update we have broken out to a higher level.  Our current Claims level is now the highest we have seen since 2021.  This in and of itself is not alarming but the trend behaviors are getting our attention.

The above chart depicts the Weekly Claims data. We date this back to mid-2021 in order to isolate the range changes that have been taking place. Our first horizontal red line notes the well established and low results of the 200,000 Claims per week. We then see how this has elevated in recent months with our second red line.

Per our second red line we see how this past week offered the change in behavior again with an upward break of this second range.

Through the lens of history this remains relatively low but the changing behavior offers concern in light of Initial Weekly Claims are more of a forward looking indicator than say new jobs created. Job creation is typically viewed as a coincident-to-lagging indicator when measuring its adeptness at predicting the downstream economic landscape.

As a general backdrop we have been seeing several forward looking measures (known as leading indicators for their historical accuracy in predicting recessing economic landscapes) flash concerns for numerous months. With this we are noting any changes throughout the employment landscape metrics to see if the labor market is attempting to chime in on the weakening economic view.

Interesting Collective Market Participant Yawn

There are publicly traded companies that focus on outsourcing human resources for companies of all sizes from a small mom and pop to a mega conglomerate. Reduced to simplicity they are often referred to as payroll processors for short.

What has been interesting relative to the employment landscape and in particular the general narrative that the employment market is very strong with no issues to point to is how market participants have been treating the stock prices of payroll processors here in 2023.

Click For Larger View:

Above represents the stock price for ADP – a very large and well known processor and general HR services provider. We use this only as a representation of how stock market participants are viewing these companies not as a positive or negative report on ADP specifically.

In the case of ADP they have been down double digit percentages in 2023. More specifically, post BLS employment report from just over a week ago when most seemed to amplify their view of how inherently strong and growing the employment landscape continues to be market participants completely yawned relative to ADP and other processors.

Being these processors are on the front lines of HR services and hence inherent beneficiaries of an on-going strong employment market (that is expected to remain so if not get even stronger per narratives) one would expect market participants to reward this industry with bids to the upside in an attempt to capture rewards of increased business and profitability. The opposite has occurred.

Market Participants Seem to Question the Strength of the Employment Landscape

As we offered the number of jobs created tends to be viewed as the metric when gauging the health of the labor market. Interestingly, this is well recognized as a coincident indicator at best and is usually viewed as a lagging indicator. This becomes particularly evident at turning points in the landscape be it from healthy to unhealthy or vice versa.

Market participants though are focused on the downstream view as they assess said view. It is an interesting statement from said participants in how they are treating payroll processor stock prices here in 2023. Their muted response to the BLS report a week-plus ago was deafening if you will. It was as though it didn’t even happen.

We offer this as an add-on to our previous edition as we continue to watch closely the employment scene in order to gauge when/if this will chime in with other more forward looking indicators that the economic landscape is currently or is expected to be weakening further soon.

The important underline is historically markets and recessing economies do not get along well at all.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

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