Market Pulse: April 8, 2024

Lou Brien has been with DRW for almost a quarter century. From his position at the company, as Strategist/Knowledge Manager, Lou keeps an eye on the Fed in particular and the economy in general. He likes to say that he looks behind the headlines to examine the finer points of the data in order to not only know where the economy is, but where it is going.

The headlines reacted to Friday’s strong data.

And what’s not to like with the headline labor market data. Nonfarm Payrolls rose 303k in March, the largest monthly increase since May last year. The 12-month average gain for payrolls is +244k, which is quite high versus the pre-pandemic record. Additionally, the Unemployment Rate was 3.8% in March; it’s been lower than four percent for twenty-six months in a row. Even in the late 1960s there was not such a long/uninterrupted streak.

Despite the sterling headline data, I’ve still got a nervous twitch about some of the underlying details that tell a more nuanced story. Not to suggest that the slightly obscure bits and pieces of the various labor market reports will supplant the bold-faced-print items as the factors that will influence Fed policy or public sentiment, but the contrary data are saying something. I certainly think the message is more valid than vacuous, but in any case, it is worth keeping track of the discordant data until such a time as we all know the punchline.

So, once again, if you can spare a minute…

Full-Time Employment, as tracked by the Household Survey, was down another 6k in March. There are now 1.847 million fewer full-time workers than there were last June. In the past, when this rolls over, so does the economy.

Since March 2022 the Temporary Help category of the Establishment Survey has declined from month to month in 22 out of 24 months; the latest report showed another drop, though it was only 1k. In the past, the trend in Temporary Help foreshadows the path for all payrolls; but not this time, not yet anyway.

The labor market churns. Every month people get hired, fired, they quit and are retired. Millions of people pass one way or the other through the labor market every month, identified as one or more statistic along the way. Among other things the JOLTS report tracks the churn. For instance, five or six million people get hired every month. But on the other side of the coin a similar amount of people separate from a job; some are fired, some quit. So, each month, the sum of the Hires and the Separations, in essence end up as the monthly change in nonfarm payrolls.

These jobs have increased every month since January 2021. However, the monthly peak for Hires was back in February 2022, and they have been trending lower ever since, even as payrolls grow month after month. Payrolls increases as the rate of hiring slows indicates that Separations are also slowing. The churn is quieting.

Less churn, is, after a fashion, an indication that the labor market is not as dynamic as it had been. Hires is one example of this dimming light.

The 12-month percent change in Hires has been negative since September 2022. This data series only dates back to late 2000. But we can see that when this indicator turned negative at the end of 2007, a recession got underway.

Of course, one of the reasons for the slowing rate of Separations is that there are fewer people quitting their jobs. A high rate of Quiters is said to be indicative of worker confidence in the labor market; that another job can be easily obtained. The fewer the Quiters, the lower the confidence.

There were more than 4.5 million Quits in April 2022, the most in any month. But the latest data show Quits are running at less than 3.5 million in each of the last three JOLTS reports, current through February. The 12-month percent change for Quits has been negative for eighteen months in a row. This happens to Quits at or around the time that it happens to Hires, at the time when the state of the economy turns. Maybe one of the reasons for the lower Quits is the almost simultaneous decline in hiring.

Most businesses are small. The US Small Business Administration (SBA) says that 99.9% of American businesses are small, defined as an independent business having fewer than 500 employees; there are more than 33 million such businesses. According to the SBA, small businesses employ about 46% of all private sector employees, with their pay accounting for about forty percent of private sector payroll. The Small Business Optimism Index, administered by the National Federation of Independent Businesses, hit an eleven year low in March.

A component of the Small Business Index is called Plan to Hire. In March only 11% of survey respondents have hiring plans.

That doesn’t really jive with the labor market’s bold-faced-print items, not really.