There's a Stunner in the Jobs Data and the Market's Reacting

The latest jobs data has demonstrated a slowing labor market. Then again, we expected that didn't we? 

Let's be honest: The Bureau of Labor Statistics (BLS) is having a really poor year in terms of providing accurate, reliable data concerning U.S. labor markets. We already know from the Business Employment Dynamics (BED) report released in April that job creation for Q2 2023 and Q3 2023 that the monthly non-farm payrolls reported for those six months overstated job creation by more than 1.3 million positions. That probably-large periodical downward revision to not just job creation for 2023 but 2023 GDP as well, is still on the way.

So, in addition to the regular revisions to past months, there's not a lot of reason to trust anything provided by the BLS in 2024. Do we even mention the gap between the optimistic establishment survey boosted by an obviously incorrect birth-death model and the more pessimistic household survey? Of course we do. 

One would think that in the era of corporations being able to surgically market clientele and then report and forecast sales with remarkable accuracy that government agencies might have improved their data collection techniques. No? More like "no dice." Let's dig in.

The Headline Numbers

Non-farm payrolls, which is always the headline number, at least for the algorithms that run financial markets, for May printed at job growth of 272,000 positions. Ooh. Ahh. Private sector job creation of 229,000. Ooh. Ahh. So pretty. So strong. Start the music. Unfortunately, there's going to be a lot more bad news in this piece from this point on. The birth-death model, which has been overstating job creation all year and needs to be corrected, provided 231,000 of those 272,000 jobs. That's right. The real, still-seasonally adjusted number is a mere 41,000. Hold on, it still gets worse.

Sticking with non-farm payrolls, April was revised from job creation of 175,000 down to 165,000. Guess how many of those 165,000 jobs were merely created out of thin air by the birth-death model? Go ahead. Guess.... That's right... 363,000. April non-farm payrolls, minus this fudgeable adjustment, really printed at -198,000. Job destruction, not job creation.

But wait. There's more. The household survey for May shows a loss of 408,000 jobs. Yup. More job destruction. According to this side of the BLS report that the financial media loves to ignore, it's ugly. Though ugly, it has been much more in line with the historically-more-accurate BLS BED report that runs with a lengthy lag. 

These results run counter to the media narrative that the economy has been so robust, which is why they do not make headlines. The ugly truth is that, according to the BLS household survey, there are 783,000 fewer employed persons in the U.S. since November 2023, when employment for this cycle apexed. Not what you've heard, huh?

A Stunner

Of the 408,000 jobs destroyed in May, according to the household survey, 474,000 of them were in the 2-to-24-years-old age group. All other age groups, in the aggregate, showed modest growth of 66,000 employed persons. I know quite a few young people, right out of college or college-aged, who claim that they cannot find work. Not only are they apparently telling the truth, but their colleagues are either quitting without finding new work or being let go. The labor market damage being done to 20-to-24-year olds is apparently hitting both men (-271,000) and women (-203,000) fairly hard.

Some Nitty Gritty

In addition to the pure numbers for job creation that we now know are much cooler than as they are presented by the propaganda machine on television, for May, as 433,000 individuals dropped out of the labor force either due to choice or an inability to find gainful employment, the participation rate dropped from 62.7% to 62.5%. This took the unemployment rate (U-3) up to 4.0% from 3.9%. An increase of 359,000 part-timers suggests a significant loss of full-time positions not reported as job losses, and the underemployment rate (U-6) held firm at 7.4%.

There was some good news in wage growth for those who were able to keep their jobs. On a month-over-month basis, hourly wages grew 0.4%, above expectations for 0.3% and up from 0.2% in April. On an annual basis, hourly wages increased 4.1%, which was above the 3.9% growth expected by Wall Street, and above the 4% growth experienced in April. Despite the wage growth, the average workweek for full-time workers, which is a dwindling group, held at a historically-weak 34.3 hours.

Unemployment Demographics

Gender:

• Adult Men saw unemployment move up to 3.8% from 3.6%
• Adult women saw unemployment move down to 3.4% from 3.5%

Race:

• White / Caucasian unemployment held at 3.5%
• Black / African-American unemployment soared from 5.6% to 6.1%
• Asian unemployment moved sharply higher from 2.8% to 3.1%
• Hispanic / Latino unemployment increased from 4.8% to 5%

Education:

• Less than a high school diploma saw unemployment improve from 6% to 5.9%
• High school grads saw unemployment pop from 4% to 4.3%
• Some college / Associate degrees saw unemployment drop from 3.3% to 3.1%
• Bachelor's degrees and beyond saw unemployment drop from 2.2% to 2.1%

The Take

Overall, this is not just a weak report, this is a very weak report. Actual job creation is probably negative. Yet again. Even if one is naive enough to trust the non-farm payrolls print, it must be unnerving to know that 85% of the job growth in May and 220% of the job growth in April came by virtue of the birth-death model that nearly every single economist I know believes is significantly incorrect. 

There was some wage growth. That's a positive for workers, but not for the Fed. This may not hurt employers as they have obviously shed some payroll and downgraded other workers from full-time to part-time while maintaining a relatively short workweek for their full-timers.

What we have to worry about is how these numbers impact thinking at the FOMC going into next week's policy meeting. I don't think they will find a reason to act on rate cuts sooner rather than later here. While it's quite obvious that the data is for the most part soft, there is enough here to force the committee to the sidelines as they cannot afford to be so opinionated as am I. They have to support their decision-making process with data or at least trending data. Though those of us in the private sector can see more holes in this report than Swiss cheese, the Fed has to at least pretend that they are buying what government agencies are selling.

Final Thoughts

My view is that if the Fed cannot act next week, then they must wait until November, as acting in July or September would make them political and subject the central bank to serious doubts as far as independence form the administration currently in power is concerned.

As far as market reaction is concerned, the U.S. dollar index has moved sharply higher since this report was released this morning. Treasury yields have moved higher plus traders have sold that market. Equity markets remain muted to this point, with the more interest-rate sensitive parts of the market trading in the red.

At the time of publication, Guilfoyle had no positions in any securities mentioned