from U.S. Bureau of Labor Statistics: The U.S. Bureau of Labor Statistics reported today that nonfarm payroll employment increased by 206,000 in June and the unemployment rate was little changed at 4.1%. Job opportunities increased in government, health care, social assistance and construction.
Bond yields fell following the report, meaning the market interpreted it negatively. But why is that when 206,000 healthy jobs were created? First, we had negative revisions to the first two reports. Even so, as we move closer to 159 million people working through nonfarm payrolls, we are still trending above my target of 140,000-165,000 — which is where we are regaining all the losses we have lost to COVID-19. The level that should be achieved after working. But the unemployment rate did rise and exceeded 4% for the first time in some time.
Negative revisions to the previous report put the 3-month average at roughly 177,000. If you take the government jobs out of the equation, we operate at 146,000 jobs That averaged out to once a month for three months, so we’re getting closer to my goal.
One thing about my target level is that employment is higher now, which means if we don’t print a lot of jobs reports, the unemployment rate will be higher even if there are no job losses. I mentioned this in my article on last month’s jobs report and have often talked about how we should expect higher unemployment in the future.
Here are 12 months of job creation data
The Fed has been concerned that too many Americans are making too much despite high wage growth. So, to keep the question as simple as possible, the Fed wants to see wage growth return to 3% because it doesn’t think the productivity data is as strong as reported. Wage growth is slowing, but they want to see more damage done here.
Below is the 12-month salary growth data, peaking at nearly 6% in 2022 and currently at 3.9%.
Other labor data (vacancies) we got this week showed the Fed had some wins in the labor market. Job openings data, which the Fed relies on, is declining significantly. As shown in the chart below, this data line has historically dropped from 12 million to 8 million. The Federal Reserve has publicly stated that job openings data show that the labor market is no longer tight. The lower black line shows that the uptrend of this data line was broken.
Initial jobless claims data is the most important labor force data we have right now, and it determines all of them. The Fed even commented on the data at a recent Fed meeting, when they publicly stated they were concerned about jobless claims data, which has been trending lower. Well, they can’t say that anymore because jobless claims have been rising for months.
The four-week moving average of unemployment claims data is 238,500. My thread is in the sand When this number breaks above, it means unemployment recession 323,000 It is above the 4-week moving average. I hope the Fed doesn’t wait until we get above this level to start pivoting.
Is the Fed winning the war on the labor market? Yes, it’s been months! So what’s next for them? Will they wait until jobless claims top 323,000 before appearing more dovish, or will they just bury their heads in the sand, let the jobless recession happen, and blame it on the need to beat inflation?
One thing I’ve been saying since 2022 is that the Fed is using the old Fed model of beating inflation by hitting the labor supply and forcing wage growth to cool. So far, they have scored many victories in the U.S. labor market. So the question for the second half of 2024 is whether they will be more aggressive with dovish rhetoric or continue to use token words of “we need more confidence” before taking action. I believe they want to see further deterioration in the labor market before turning around. I hope I’m wrong on this premise – time will tell.
