Essential Economics

 — Mark Frears

Kodiak

Have I told you about the summer working quality control for a salmon cannery on Kodiak Island? It was a pretty good job, with good people, food and room supplied, and beautiful environment. The one thing that made it difficult sometimes was that as long as the boats brought in fish, we had to run the cannery. That sometimes went on for days!

The current environment seems to have all the jobs that people want, keeping the economy swimming right along.  Will this continue?  

Current state

The non-farm payroll release comes out each month on the first Friday, showing us how many new jobs were added in the previous month. As you can see below, the past three months have averaged 265,000 jobs, and the past six months’ average is 231,000. This is far from recessionary.

Source: Bloomberg

The number of workers hired shows strength in the labor market. How about the number of people unemployed? The weekly Jobless Claims release shows new people filing for unemployment benefits. The chart below shows we continue to run just over 200,000 per week. This is not showing weakness.

Source: Strategas

Another positive for the job market is the businesses that were created during the pandemic and in the aftermath. Metrics show that firms in the earlier stages of growth hire more workers, as you can see below.

Source: Oxford Economics / Census Bureau

This trend should help the economy and job market stay strong for the next few years.

Wild card

The economy is growing at a faster pace than most people predicted. Earnings at companies are doing just fine, and consequently, companies are hiring to meet demand from consumers. If we have a larger part of the population reaching retirement age, causing a decreasing workforce, where are these workers coming from?

On February 7, the Congressional Budget Office (CBO) published new population estimates showing faster population growth, due to an increase in immigration (see below).

Source: CBO, Morgan Stanley

This is a huge adustment, adding significantly to the workforce. The impact to 2023 was major, and this could have impact into 2024 and 2025.

As the chart below shows, while native born employment is dropping, foreign born is more than taking up the slack.

Source: Strategas

Bad news?

There are some areas where cracks might be seen in the labor market. Let’s take a look at a few of them. First, we are starting to see headlines about job cuts. The Challenger U.S. Job Cut tracker (below) shows an uptick that bears keeping an eye on.

Source: Bloomberg

Second, the number of hours worked by employees can be an indicator of how the employer sees demand for their product. As you can see below, workers’ hours have been dropping since peaking in March of 2021.  

Source: Bloomberg

Third, while the Job Openings and Labor Turnover Survey (JOLTS) continues to show plentiful jobs available, there is some concern that these are not “real” jobs, but ones posted because they had to, and ones that are to fill up a pipeline of resumes. In addition, from this monthly release, we also get the “quits rate” that shows people voluntarity leaving jobs. In the chart below, we can see this stat has been dropping materially, back to levels not seen since we entered the recession in 2008.

Source: Piper Sandler Research

The thought behind this metric is that if the employee feels confident they will easily get another job, they will potentially leave their current one. This is showing that workers’ perception of the job market is changing.

FOMC

The FOMC meeting this week will have the updated quarterly Summary of Economic Projections (SEP), including the unemployment rate, GDP and inflation estimates. Pay attention to see how the Fed is looking at the complex labor market.

Economic releases

Last week, we had higher CPI and PPI, along with lower Retail Sales. The consumer sentiment numbers were about flat, but we have seen more concern about higher interest costs on loans starting to dampen enthusiasm.

This week’s calendar is full of housing numbers, and we also have the Leading Indicators out. This will not be the focus though, as the Fed concludes their March meeting on Wednesday, and all eyes will be on the Dot Plot and the news conference. See below for details.