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The Strange Employment Landscape

CAMS Weekly View from the Corner – Week ending 6/2/2023

June 5, 2023

This news release presents statistics from two monthly surveys. The household survey measures labor force status, including unemployment, by demographic characteristics. The establishment survey measures nonfarm employment, hours, and earnings by industry. Employment Situation Summary – 2023 M05 Results (bls.gov)

This past Friday the Bureau of Labor Statistics (BLS) reported their findings relative to the employment backdrop for the month of May.  If we trust the proverbial general narrative we would quickly conclude the U.S. employment landscape is operating on all cylinders with no chinks in its armor to be concerned about let alone actually analyze. For our part we are always more interested in analysis than talking head induced narratives so we will offer some analysis of the data that does speak to chinks in the employment armor. Very importantly, the often cited BLS employment report is made up of two separate surveys as briefly broken down in our header excerpt from the BLS itself.  There is the survey of established businesses known as the “Establishment Survey” coupled with a different survey of actual household’s known as the “Household Survey.” As the header offers each provides different aspects of the broad employment landscape.

To broaden this out even more there is the important Weekly Unemployment Insurance Claims often known as “Claims Data” released every Thursday morning.  In addition, on a monthly basis, a couple of days prior to the BLS release the well known private payroll processer ADP releases their employment related data for the month from the actual payroll processing they do for millions of individual employees across a large swath of industries and size of companies serviced. 

All told there is a wealth of data strewn throughout the above broad employment measuring landscape.

Households & Establishments completely contradict While the Establishment Survey reported an increase of 339,000 new jobs created in May the Household Survey reported an increase of 440,000 newly unemployed – not a typo.  This now totals 6.1 million people in the Unemployed category which is the highest we have seen since early 2022 which at that time was still descending lower from a dramatic spike in the Covid timeframe. As a quick aside if you are knee-jerking with the thought of those in the Unemployed category are simply a reflection of how disinterested people have become in looking for a job etcetera it is important to realize the only way a person is counted into this category is if they have actively searched for employment in the previous 4 weeks.  If they have not looked for a job in the previous 4 weeks they fall into the category of “Not in Labor Force – Who Currently Want a Job” meaning they are unemployed and want a job but for X reason have not actively searched for a job in the previous 4 weeks.  This category of unemployed stands at 5.5 million people and like the official Unemployed level this too has increased in May to the tune of an additional 206,000 people.  Since March this number has increased by 550,000 people.  This number coupled with the recent increases in the actual Unemployed category equates to some obvious chinks in the employment landscape via the Household Survey. As an additional aside these 5.5 million people are differentiated from the much larger broad category of “Not in Labor Force” which stands at 100 million people currently (essentially 1/3 of the population) and captures everyone who has not looked for a job in the previous 4 weeks regardless of reason and has no intention to do so. The Establishment Survey Shows Softening Inside Itself  Employment itself is known as a coincident indicator at best and usually as a lagging indicator meaning it shows issues some time after the economy had already begun to weaken. Within the Establishment Survey there are some metrics that offer a more forward looking view.  Average Weekly Hours of Production & Nonsupervisory Employees along with Average Weekly Overtime Hours of Production & Nonsupervisory Employees have both been trending down over the previous year with recent months showing the lowest levels of the timeframe. In addition the Quits Rate has also been trending down in similar timeframes.  Historically this rate informs us how strong the employment market is relative to how emboldened people feel to quit their jobs in search of greener pastures in light of opportunities being plentiful.  This trend reflects softening in the employment landscape. The employment landscape is very broad and dynamic.  The U.S. economy is very large and not easily quantified into one number every thirty days.  At times all data aligns and the trends remain in place offering little to discuss.  At other times, in particular when approaching cross-roads of change (from healthy to unhealthy or vice versa) the broad data begins to present contradictory messages as offered above – think 339k new jobs/440k newly unemployed/206k not in labor force but want a job – which can easily lead to one-liner narratives in either direction taken as complete fact. It appears the employment market is softening within itself which when viewed through history the headline jobs number is one of the last to show up.  Similar to a structural foundation the erosion unfolds slowly and if left to its on-going deterioration picks up speed to the point of collapse.  A casual observation of said structure leaves the observer confused upon collapse – “it all seemed fine.” Importantly, we never know when it comes to the economic trends whether deterioration leads to full blown collapse or just softness.  There are many metrics outside the scope of this edition that have been pointing to an on-going softening economy.  Weekly Claims & ADP Above we mentioned ADP’s monthly employment results taken from actual payroll processing increases.  For May they too reflected a couple hundred thousand job increase so we see corroboration here to the general view that the employment landscape continues reflect an increase in jobs. The Initial Weekly Unemployment Claims data has been corroborating the Household Survey’s notable increase in actual unemployed people.  On a trend basis we had been seeing steadfast 200,000 Weekly Claims and lower until very recent months whereby it picked up notably to the 250,000 range.  This has been noticeably out-of-character from the previous on-going levels. Today’s edition offers only a small view into the wealth of employment details strewn throughout the various surveys and measures.  The data offers an employment market that is neither as strong nor as weak as you-pick-it one-liner narrative.   With this, in our view, it is imperative to ferret out the details in this process as history offers time and again when the winds of change begin to blow this is exactly what it looks like in the early stages.  Think cross-currents of change.  The question is will the broader measures continue to point to softness that lead to negative trends or can they hold themselves together?  Near-term months will be telling us a lot – be careful of the one liner narratives. I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

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