Labor Woes, Growth Slows
Weaker Labor Markets Signal Slowdown Ahead
Employment is a key driver of Real GDP. With sequential weakness we've seen in employment data recently, there’s been a divergence between Labor and Output as labor markets are trending lower while output remains firm. While September & October are typically stronger months for hiring, any further slack in the labor market will likely weigh on growth until it is more in-line with employment.
While this chart the above chart is telling, it’s important for our process we don’t cherry pick one data point or number to formulate our view. Particularly when numbers can be revised, such as the massive revision to the NFP data announced a few weeks ago (followed by another weak report). Unfortunately, however, the majority of the recent labor market data IS getting weaker, and will in turn only become a bigger drag on growth from here. Over the past few weeks, several key reports posted well below consensus expectations and, a few even had their lowest numbers in years or decades.
Job Openings have been falling since March 2022. Moreover, the pace at which openings have declined is already at levels only seen in the middle of a recession and has been for some time.
The Challenger data was disappointing as well, as US employers announced 75,891 job cuts in August 2024, the most in five months, and the most for the month of August since 2009 when excluding the pandemic-induced crash in 2020. Additionally, US employers announced plans to hire 6,101 workers in August, compared to 3,676 in July which was the lowest total for July since records began in 2009.
The ADP Employment Change data was more of the same, showing that Private businesses in the US added 99K workers to their payrolls in August 2024, the lowest number since January 2021, following a downwardly revised 111K in July and well below forecasts of 145K. Figures showed the labor market continued to cool for the fifth straight month while wage growth was stable.
Although the overall unemployment rate actually decreased (due to the reversal of temporary layoffs), there's been a significant increase in the number of people working part-time due to economic reasons for the second month in a row. Consequently, this trend is pushing up the broader measure of unemployment, known as the U6 rate, which has now risen to a new high of 7.9%, indicating rising underemployment.x
Where does all the above labor market data begin to stymie growth? Through Labor’s wallet AKA through spending. Consumer Spending is one of the primary drivers of corporate profit growth cycle. Lasting deterioration in the labor market would certainly put pressure on household wallets in the coming months. Put more simply, when less people have jobs, less people have money to spend. Certainly something to keep an eye on if these employment & hiring trends continue.
Overall, weak Labor Markets are a worrisome development as we continue to teeter between heading towards a Recession & the Fed successfully navigating a Soft landing. Today's Labor Markets certainly give more credence to an argument for the former, not the latter.
Until next time…
Bob