The market, in Christmas-jubilee fashion, responded positively to today’s employment report. The seasonally adjusted bottom line figure reported by the Bureau of Labor Statistics came in up 203K. The 203K in net new jobs equates to a year over year growth rate of +1.7%, well ahead of population growth of about 0.8%.
In addition to the expectation-beating employment figure, one other figure pointed to an economy apparently accelerating. That data point – the unemployment rate. The unemployment rate was reported at an even 7%, about 0.2% below economists’ expectation.
The better-than-respectable employment growth and unemployment rate figures coincide nicely with the recent initial unemployment insurance claims figures, which came in just below 300K for just the second time in about eight years. Interestingly, on a quarterly average basis, initial claims are up slightly to about 340K from the Q3 average initial claims number of 326K.
What do the three data points (net new jobs, unemployment rate, and the initial unemployment insurance claims) point to?
Well, here’s a look at the three side-by-side. Anything stand out?
Four things stand out to this analyst.
First, although the same general movement is present in all three, the recovery in initial claims has been much stronger than the unemployment rate or the employment growth rate.
If one were to judge the labor market solely by the initial unemployment insurance claims, most analysts would likely suggest that the business cycle is about to turn. How long can initial unemployment insurance claims stay around 300K (or even below 300K). In the dot-com run-up, initial claims floated below the 300K level for about 2 years, from around 1998 to 2000. During the most recent boom, initial claims only briefly touched the below-300K a few times.
Second, employment growth booms have become much more subdued. Something happened around the mid-1990s that dampened the positive side of the labor market. Interestingly, the housing market boom that peaked around 8 years ago only had a peak year over year employment growth rate of a little over 2%, much less than the 4% to 6% peaks of the 1960s, 1970s, and 1980s.
Labor market approaching a peak in growth
Should this dampened boom effect continue to be a trend, as it appears it will, one could easily conclude that the labor market is again approaching a peak in growth.
Third, the unemployment rate, the most stubborn of the three measures, sure looks to be taking on a more European-style recovery nature. This simply means that no one alive today will see a 4% U.S. unemployment rate.
Fourth, the synchronizing of all three labor market measures is probably a sign that today’s employment situation report is floating around peak employment growth, rather than a sign of acceleration.
Overall, the labor market figures today looked quite good. Just be careful in what you think the labor market can accomplish.