The Labor Market Is In Crisis?

Today we take a look at where the U.S. labor market stands right now, what the latest data mean for the global economy, and of course how all of this affects our own investment decisions.

NON-FARM PAYROLLS

We start with the Non-Farm Payrolls, known as NFP. In November, the U.S. economy added 64,000 new jobs, a figure clearly better than analysts’ expectations, which were around 40,000 to 45,000.

This was a small upside surprise. However, we should not focus on this alone. In October, NFP recorded a decline of 105,000 jobs, mainly due to layoffs in the public sector and specifically from the deferred resignation program in the federal government. Government jobs had already been declining since January, and overall more than 270,000 positions have been lost since then.

This means that even though November shows a small sign of recovery, the overall trend remains downward.

UNEMPLOYMENT

Let’s move on to unemployment. The rate rose to 4.6%, the highest level of the past four years.

And that is not all. The broader measure of unemployment, which includes part-time workers and discouraged workers who have stopped looking for a job, climbed to 8.7%, a level last seen in August 2021.

Labor force participation increased slightly to 62.5%, but this rise was not enough to absorb the growing number of unemployed. At this point, we should also remember that in October there was no official statistical report due to the shutdown. As a result, the data are incomplete and potentially distorted.

All of this points to one thing. The labor market is weakening.

Heather Long, chief economist at Navy Federal Credit Union, said it clearly: “The U.S. economy is in a kind of labor market recession. Only 100,000 jobs were created in total over the past six months. And most of them were in healthcare, which traditionally continues hiring due to population aging.”

WHAT DOES THIS MEAN?

So what do all these figures mean? Are they good or bad news?

The truth is, both. On one hand, November was better than expected. On the other hand, the data are distorted. Jerome Powell himself warned that due to the shutdown, the figures are not 100% accurate.

That is why investors appear divided:
Some are worried about a recession and a freeze in the labor market.
Others believe the numbers were simply blurred by the shutdown and public sector layoffs, and they are already looking ahead to the December report.
Some commentators see the rise in unemployment as alarming, while others argue that the fact private payrolls remained positive is a sign of stability.

Market reaction was not particularly positive. Bond yields rose slightly, but overall most investors adopted a wait-and-see stance. Why? Because everyone is now focused on the Federal Reserve and what it will do at the January meeting.

According to the CME Group’s FedWatch tool, the probabilities for another rate cut remain low. However, everyone is waiting for the December report before forming a clearer picture.

The Federal Reserve has already delivered three consecutive rate cuts, and pressure is building for a more aggressive policy. Conditions are changing, and the balance between inflation and unemployment is becoming increasingly delicate.

Posted Using INLEO