This morning, the Bureau of Labor Statistics (BLS) released yet another confusing report about the health of the U.S. labor markets. According to its “The Employment Situation – November 2022” data, it seems the economy created 263,000 net, new payroll jobs, and the Unemployment Rate remained steady at 3.7%. What is not to like, huh?
After all, when the economy is creating jobs, it is creating paychecks. When it is creating paychecks, it is creating consumers. This is a good thing in an economy that is heavily dependent on consumption, as opposed to production. So, 263,000 jobs? Unemployment less than 4%? Everything must be coming up roses.
As Simon & Garfunkel sang in “The 59th Street Bridge Song,” “slow down / you move to fast.”
This is the second consecutive jobs number that is somewhat confusing when you look past the headline numbers. To use a baseball analogy, they have been dinky infield hits that look like line drives in the box score the next morning. Essentially, all is not as it seems.
Before you think me a “glass is half empty” sort of fellow, consider the following. Fewer people participated in the workforce last month, only 62.1% of working-age Americans. What’s more, that number is moving in the wrong direction, having fallen 0.2% over the past two months. While that might sound miniscule, it represents around 427,300 people. Poof. Not looking. Sayonara, and all that jazz.
Further, although employers claim they added 263,000 to their payrolls, households have been singing a different story altogether. Far from creating jobs last month, extrapolating data from the survey respondents suggests the economy actually shed 138,000 jobs. This was after implying we lost a whopping 328,000 in October. That is 466,000 lost in two months. That is what U.S. households are telling the BLS.
Conversely, employers are telling the bureaucrats they have added 547,000 over that same time frame. Obviously, this begs the question: what gives?
Again, there are two surveys, Household and Establishment, and they don’t always have to be completely in sync. However, they usually are, at least directionally. If not, they fall back into line pretty quickly. Ultimately, you would like for them to converge, and they often do. Clearly, they haven’t.
So, what should we believe? The strong payroll number or the weak household data? Has the economy created close to 600,000 jobs over the past two months? Or has it lost 500,000? What’s the story, Morning Glory?
When there is doubt, the Street gives the payroll number precedence. We are seeing this in the markets today, as investors fear the “fever hot” jobs number will force the Fed to be more aggressive. However, and this is where you have to be a nerd, the headline number doesn’t really jibe with recent “purchasing manager reports.” These suggest companies have been slowing their hiring, in aggregate.
However, not very many people take the time to go through all of the data, not even on Wall Street. Regional PMI surveys? Puh-leeze. The only thing that matters is the Employment Situation report. Come on, Norris. Get with the program.
Life has taught me when there are two extremes, the truth is usually somewhere in the middle. This is probably the case with the current labor market. It is neither as robust as the Establishment survey suggests nor as weak as the Household one implies. How is that for being political?
Still, given the paltry “labor force participation rate,” I would hesitate, almost to a halt, before claiming the U.S. jobs market is strong. As with pretty much everything over the past couple of years, nothing about it makes much sense. There is a massive number of job openings and a huge amount of potential workers who don’t care. That is an anomaly. People are saying one thing, and employers are saying another. Layoff announcements are way up, yet business owners still complain they can’t fight qualified workers.
Weird stuff, that.
I am going to go out on a limb here and suggest the way the BLS tracks the labor market needs some updating. After all, does it do a good job tracking gig work? I don’t know, and I am not sure if the BLS knows either. Shoot, with Venmo, Zelle, and other P2P payment platforms, how in the world can Washington possibly track who is doing what, where and when. Trust me, it sure would like to know.
Obviously, there has always been an “under the table” workforce. I mean, how many people take out payroll taxes from their usual babysitter, dog walker, house cleaner, yard service or what have you? If not that, ever give them a 1099-MISC? I think you get the picture. Now, how many of these people tell the government they have a payroll job when the bureaucrats call up? Methinks probably not all of them. This has always been the case. What’s the old expression? The more things change, the more they stay the same?
Indeed.
Today’s technology and the ease with which we can move money around has made the black market economy and “under the table” workforce that much larger. The government knows this, which is why it wants to make employees out of gig workers. It also wants to track your banking transactions. Who are you sending money to and why? That sort of thing. At some point in the future, the Feds will probably get what they want; it just won’t be today, tomorrow, next week, month or year.
So, when I see numbers like the ones this morning, I have to take them with a proverbial pound of salt. They are the best we can get, but they still aren’t telling the whole story. But just what is it, the story? I suppose it depends on the storyteller.
Let me close with the following: “Once upon a time, there was a great big country with a great big economy. The labor force was neither too hot nor too cold, like bowls of porridge. It was just right…at least for now…but the evil witch wanted to mess things up somehow. The end.” I hope you liked that.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist & Storyteller
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.