Jobs Report Shows Concerning Decline That Preceded Great Financial Crisis
A rapid and severe reduction in a key economic measure revealed in the latest jobs report is potentially alarming.
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I honestly do not know how much we can accurately take away from the release of Friday morning's January employment surveys by the BLS. There are more revisions than a wildman could shake a stock at that make January very close to non-comparable to December and recent months.
In fact, the BLS straight out told us that after making benchmark revisions that impacted the current release.
On the Household Survey
"This year's (benchmark population) adjustment was large relative to adjustments in past years. It reflects both updated methodology and new information about net international migration in recent years. In accordance with the usual practice, BLS did not revise the official household survey estimates for December 2024 and earlier months. However, to show the impact of the population adjustments, table B (The Establishment Survey) displays differences in selected December 2024 labor force series based on the old and new population estimates."
Now that we are clear that we are working with "beyond deeply flawed" data, let us proceed. At least the bureau admitted that last year's methodology was providing inaccurate results. The fact that markets, policy makers and even voters reacted to that data, oh well.
On That Establishment Survey
"In accordance with normal practice, the establishment survey data released today have been benchmarked to reflect comprehensive counts of payroll jobs for March 2024."
Skipping a bunch of mumbo jumbo, we come to:
"The seasonally adjusted total non-farm employment level for March 2024 was revised downward by 589,000."
The BLS then adds:
"Table A (Household Survey) presents revised total non-farm employment data on a seasonally adjusted basis from January to December 2024."
I must ask, is there even a slim chance that anything here is close to reliable?
The Numbers
From the Establishment Survey, January Non-Farm payrolls printed at growth of 143,000, which was considerably below expectations. That said, with the benchmark adjustments, November and December NFPs were adjusted up an aggregate 100,000 jobs.
So, a net gain of 243,000 is better than expected, I guess... unless one considers that we are starting with 589,000 fewer jobs than we thought.
I thought a real concern was in the average weekly hours worked by full-time employees. December was revised down to 34.2, which was fairly awful to begin with. January printed at 34.1. This makes January the weakest month since 2010 in terms of demand for hours by employers of their full-time employees. A decline in this series was a harbinger for mass layoffs going into the "Great Financial Crisis."
Strangely though, hourly wage growth, which had been sagging, rebounded in January to the tune of +0.5% month over month and 4.1% year over year versus growth of 0.3% and 3.9%, respectively, for December.
Turning to the Household Survey, the number of employed persons, if we were to go there though the BLS did not, increase by 2.234 million persons as the population aged 16 years or greater was revised up by 2.9 million persons. The participation rate improved from 62.5% to 62.6%, while the employment-to-population ratio improved from 60% to 60.1%. The unemployment rate dropped from 4.1% to 4%, while the underemployment rate held steady at 7.5%.
Demographics
The unemployment rate along gender, ethnic background and education:
- Adult Men held steady at 3.7%
- Adult Women dropped from 3.8% to 3.7%
- Teenagers dropped from 12.4% to 11.8%
- White dropped from 3.6% to 3.5%
- Black or African American increased from 6.1% to 6.2%
- Asian increased from 3.5% to 3.7%
- Hispanic or Latino dropped from 5.1% to 4.8%
- High School Dropouts dropped from 5.6% to 5.2%
- High School Graduates increased from 4.3% to 4.5%
- Some College/Associate Degrees held steady at 3.5%
- Bachelor's Degrees and more dropped from 2.4% to 2.3%
Meaningful?
In terms of potentially impacting monetary policy going forward, are Friday morning's results and revisions meaningful? On the surface, not especially. Job creation has not fallen off of a cliff, and wage growth, if this data is close to accurate, has started to re-accelerate. Those are positives. The wage growth could be supportive of increased consumer level inflation. That would definitely put the kibosh on thoughts of any interest rate cuts anytime soon.
On the other hand, the rapid and severe reduction in the average workweek is potentially alarming. Workweeks got this short back in 2008 as the nation went into economic free fall, and more or less stayed there until 2010. As a matter of fact, it wasn't until late 2011 that this item started to look more normal. Should this lead to widespread lay-offs as it did in 2008, that would force the FOMC to get real dovish really quickly.
I don't think financial markets see this just yet as according to fed funds futures markets trading in Chicago, the probability for a March rate cut has dropped from 14% this morning to 8%, and the likelihood for a rate cut by March 19 has dropped from 64% to 59%.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
