The BLS reported a U.S. employment figure of +204K this morning, with upward revisions of +60K for the three months prior.
The market generally liked the figures, pushing the S&P 500 (INDEXSP:.INX) up about a percent in midday trading. The odds of a December Federal Reserve taper also increased, pushing the 10 year T-Note up about 10 basis points.
The report was even more surprising given that the federal government was shut down for a couple weeks in the month.
Employment figures represent acceleration in economy
The surprising figures leads one to ask: are today’s employment figures representative of an accelerating economy or perhaps the peak of the recent recovery? In other words, are we already at the peak of the boom?
Since bottoming out in February 2010 at 129.3 million, nonfarm employment has steadily gained traction. Overall, total employment growth has ticked up by about 7.2 million over the prior 43 months.
In terms of how employment looks relative to the all-time high, nonfarm employment is still 1.5 million jobs below its January 2008 peak of about 138.1 million.
Back to the question at hand: is today’s employment report an sign of the impending boom or simply an indication that we’re already at peak growth?
Difference in nonfarm employment
Look at the chart below, which shows the monthly difference in nonfarm employment from 2000 to 2013. The color represents what the absolute employment figure has been; essentially, the darker the green, the higher the overall employment number, while the darker the red, the worse the employment number.
A couple things stand out.
First, there’s no bell shape to the labor market recovery, quite contrary to what has historically been the case. Instead, the recent monthly employment growth has steadily come in in a narrow range.
The lack of strong growth months (i.e. very few +300K or more) and very few low growth months (i.e. less than 100K) indicates that the labor market may actually be in a “new normal” (maybe it’s not just theory), where the booms and busts are more moderated. This might indicate that the +204K in today’s report is a “peak” in the “new normal boom”, rather than indicative of better things to come.
Second, the color-coding indicates that a slowdown may at least be a year off. In the previous boom, the time frame in which the economy operated in positive “green territory” was about 2.5 years (mid-2005 to the end of 2007). The current recovery has been in positive blue territory for about a year.
Essentially, the two noted observations would indicate that the economy is at either the peak or getting closer to the peak.
Overall, the U.S. labor market continues to improve, with today’s above-expectations figures an encouraging sign of employment conditions. The report, though, does have some warning signs that, when viewed from an historical perspective, point towards the economy peaking rather than accelerating.