Employment week | Looking for Alpha

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By Robert Eisenbeis, Ph.D.

During the first week of June, we have access to a number of important US labor market reports to accompany the April inflation data. The FOMC, which meets On June 13-14, will have an additional observation on CPI inflation but will not receive the May PCE until April 30, after the meeting. We now also have a lot of data and information from the Beige Book that will be key elements for the FOMC deliberations. As for the Beige Book’s report on real activity, all sections of the country show continued growth, with four districts reporting moderate growth (i.e. between 1.8 and 2% – see Jeffrey Sparshott, ” Fedspeak: What’s the Difference Between ‘Modest’ and ‘Moderate’?,” The Wall Street Journal, August 1, 2013), with five reporting modest growth and three reporting slight growth. Consistent with growth estimates, the Beige Book also notes that labor markets have improved modestly or moderately in the districts. He also noted slightly lower wage growth, but challenges from COVID and general labor shortages.

The more modest assessment of labor market conditions in the Beige Book contrasts with what appear to be general measures of the labor force in national statistics. First, new jobless claims are now at 200,000 since the last week of May after rising slightly in the second and third weeks of the month. The JOLTS data presented in the chart below, although only available with a lag, not only show that the number of unemployed people is low by historical standards, but also that there were, in April , nearly 11,400,000 vacancies against 5,941,000 unemployed.

Number of unemployed compared to vacancies 2019 to December 2021

Number of unemployed compared to vacancies 2019 to December 2021 (FRB St Louis FRED and BLS)

Additionally, new hires, shown below, outnumber departures, while the number of people leaving existing jobs is nearly double the number being laid off. This means that people quit and get new jobs, instead of being added to the unemployment list.

JOLTS Rate of increase in hirings and departures

JOLTS Rate of increase in hirings and departures (FRB St Louis FRED)

The BLS jobs report shows that 390,000 jobs were added in May, down a bit from the 436,000 jobs created in April, but not that different from the March number.

CES job gains and losses January 2021 - May 2022

CES job gains and losses January 2021 – May 2022 (FRB St Louis FRED and BLS)

May’s number is more than double that projected by ADP, which estimated about 128,000 jobs were created. Clearly, there has been a slowdown in job creation, but far from what ADP suggests. Positive gains were reported by the BLS in most major categories, including leisure and hospitality, professional and business services, transportation and warehousing, construction, healthcare, manufacturing, trade wholesale, mining and government. The only decline was recorded in retail trade. Finally, average hourly wages have increased over the past 12 months by 5.2%, still below the overall price increase for the month. When it comes to the downturn, with so many vacancies relative to the unemployed, it’s no wonder employers are more cautious about creating jobs that can’t be filled.

So, from the FOMC’s perspective, it faces PCE inflation above its target, a strong labor market by most standards, and a moderately growing economy of around 2%. There is little in this data to suggest that a recession is imminent, and the FOMC will likely see room for another 50 basis point increase in its target federal funds rate at its next meeting.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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