Is the US Economy Actually adding more jobs than expected?
If you have been living under a rock for the past few days, unless you are not an economic savvy, the Bureau of Labor Statistics has released its newest Non-Farm Payrolls much above the expectation. The NFP rose by 263,000 last month, compared with an expected 200,000.
At first, my reaction was that the FED will have to keep raising interest rates, especially as the US dollar reacted to this news by jumping 0.8%. However, I was skeptical as to how NFP jobs increased but the unemployment rate remained steady at 3.7% in an economy that is starting to experience drawdowns from inflation. So I made a research to analyze exactly what is going on.
1. What is happening in the US labor market?
Today the NFP is at ~270,000 jobs, similar to mid-2018 when the labor market was defined as strong. It is much lower than the peak job creation in 2021 but 70,000 extra jobs compared to the expectation is a major difference.
2. What is happening with wage growth in the US labor market?
Wage growth has increased by 0.6% month-over-month. This is way too strong for the FED's target of 2% in inflation. But why is it so high? Well, one of the reasons is that the supply of labor is not coming back. The participation rate remains way below pre-pandemic levels, even when accounting for an aging population. So if labor participation is low, job creation must be low to slow inflation, yet, the labor market appears to be healthy.
Nonetheless, I wrote an analysis in October challenging the FED's data collection on job creation.
"Once consumers have reached their credit limit, they will most likely look for another job. “About 38% of American workers have looked for a second job, while an additional 14% plan to” (LA Time, 2022). This justifies the reasons for more job creation in the U.S. economy as emphasized by the Biden Administration and the Fed, however, it is mostly people looking for a second or third job."
Credit debt is increasing at an all-time high due to inflation. "U.S. households are spending $445 more every month due to inflation" (Lacurci G, 2022). So those who cannot keep up with their bills have to work more jobs or extra time.
This makes total sense, especially when the Household Job Survey shows no jobs added in the past 8 months, while the Establishment Survey shows 2.7 million jobs added, which is the one used by the FED.
Why such a large difference between the Household Job Survey and Establishment Survey?
The answer lies in how the different surveys are run.
For instance, the household survey counts people holding multiple jobs as one employed person. While the establishment survey counts all the jobs created, even if it is a second or third job. Based on the analysis I previously published, at least 700,000 Americans have had a second or third job in the last 12 months to make ends meet.
3. Where are jobs being created and lost?
Being created: leisure, government, education, and healthcare.
Being lost: goods, transportation, retail, construction, and utilities.
Conclusion:
The NFP survey is informing the market about Powell's next decision in December. The strong nominal wage growth and "strong" job creation argue there could be further rate hikes and hawkish talk from grandfather Powell. It is imminent before we will start to see weaknesses in the labor market. It is imperative to understand when will the turnover point of the labor market be and how bad to best position yourself, hence, we can start to see a FED pivot in early 2023 as the labor market weakens.
This is for personal recording but feel free to comment and argue.
At first, my reaction was that the FED will have to keep raising interest rates, especially as the US dollar reacted to this news by jumping 0.8%. However, I was skeptical as to how NFP jobs increased but the unemployment rate remained steady at 3.7% in an economy that is starting to experience drawdowns from inflation. So I made a research to analyze exactly what is going on.
1. What is happening in the US labor market?
Today the NFP is at ~270,000 jobs, similar to mid-2018 when the labor market was defined as strong. It is much lower than the peak job creation in 2021 but 70,000 extra jobs compared to the expectation is a major difference.
2. What is happening with wage growth in the US labor market?
Wage growth has increased by 0.6% month-over-month. This is way too strong for the FED's target of 2% in inflation. But why is it so high? Well, one of the reasons is that the supply of labor is not coming back. The participation rate remains way below pre-pandemic levels, even when accounting for an aging population. So if labor participation is low, job creation must be low to slow inflation, yet, the labor market appears to be healthy.
Nonetheless, I wrote an analysis in October challenging the FED's data collection on job creation.
"Once consumers have reached their credit limit, they will most likely look for another job. “About 38% of American workers have looked for a second job, while an additional 14% plan to” (LA Time, 2022). This justifies the reasons for more job creation in the U.S. economy as emphasized by the Biden Administration and the Fed, however, it is mostly people looking for a second or third job."
Credit debt is increasing at an all-time high due to inflation. "U.S. households are spending $445 more every month due to inflation" (Lacurci G, 2022). So those who cannot keep up with their bills have to work more jobs or extra time.
This makes total sense, especially when the Household Job Survey shows no jobs added in the past 8 months, while the Establishment Survey shows 2.7 million jobs added, which is the one used by the FED.
Why such a large difference between the Household Job Survey and Establishment Survey?
The answer lies in how the different surveys are run.
For instance, the household survey counts people holding multiple jobs as one employed person. While the establishment survey counts all the jobs created, even if it is a second or third job. Based on the analysis I previously published, at least 700,000 Americans have had a second or third job in the last 12 months to make ends meet.
3. Where are jobs being created and lost?
Being created: leisure, government, education, and healthcare.
Being lost: goods, transportation, retail, construction, and utilities.
Conclusion:
The NFP survey is informing the market about Powell's next decision in December. The strong nominal wage growth and "strong" job creation argue there could be further rate hikes and hawkish talk from grandfather Powell. It is imminent before we will start to see weaknesses in the labor market. It is imperative to understand when will the turnover point of the labor market be and how bad to best position yourself, hence, we can start to see a FED pivot in early 2023 as the labor market weakens.
This is for personal recording but feel free to comment and argue.