Danger in the Puzzling Jobs Picture - Vested

The headlines recount – with justice – the surprising and durable strength of the country’s jobs market. Especially telling are the latest figures. After some moderation in the pace of hiring during the middle months of 2023, jobs growth roared back in December and January with payrolls expanding almost 700,000 during those two months alone. These figures moved Federal Reserve (Fed) Chairman Jerome Powell to declare the economy “strong,” adding, to the great disappointment of Wall Street, that the Fed therefore had no need to cut interest rates immediately. These jobs figures, along with a raft of other data, have certainly embarrassed the consensus forecast from earlier in 2023 that the economy was on the verge of recession.

Yet the picture is less clear than the headlines and the now evolving consensus of strength suggest (it always is.) Much statistical and anecdotal news paints a contrary picture that carries the potential of another consensus embarrassment, this time away from the settled opinion of strength — a shift in thinking that could prompt an unsettling adjustment in financial markets.

One bit of contrary news lies in the detail of the otherwise encouraging payroll report. The hiring strength seems to be concentrated in just a few industries, suggesting an ongoing catchup from the worker shortages of past years rather than widespread expansion. Such a situation carries the possibility of a relatively sudden end to the hiring surge. More significantly, statistics other than the payroll count point to weakness. When the Labor Department polls households instead of employers, reports for January and December show some 692,000  fewer people working, effectively the exact reverse of the payroll tally. This household survey indicates no net jobs growth since last July. Some of this difference might reflect the numbers of people who have more than one job. For the household survey, they report that they simply are employed, but the employers count each job. Still, such statistical considerations cannot account for the entire difference or even much of it.

Nor is the so-called “quit rate” especially encouraging. This statistic, also compiled by the Labor Department, tracks the number of Americans who voluntarily quit their jobs. It could show levels of satisfaction and dissatisfaction with working conditions, but since for the great mass of workers these considerations change little from one month to the next and even from one year to the next, the amount of quitting is usually taken as a sign of how much confidence people have that they can find another job. In 2021 and early 2022, the quit rate ran high. Some 3 percent of the working population willingly walked away from their jobs, confident that they could find alternative work quickly if not immediately. On average in 2023, that figure fell some 12 percent, and by year end, the quit rate had settled at just over 2 percent of the working population, about where it was before the pandemic. Clearly, workers are less confident about employment prospects than they were.

Widespread layoff announcements also need consideration. All the time the payroll figures were soaring, major employers were laying people off. As this new year began, Citigroup announced its intention to cut some 20,000 jobs. Xerox Holdings said it planned to cut payrolls 15 percent. BlackRock announced plans to cut some 3 percent from its immense workforce, while Microsoft made plans to eliminate 1,900 positions. Google, after announcing 30,000 in layoffs last December upped the figure by 1,000 in January. In the retail area, where the payroll survey showed strong hiring, Macy’s announced 2,000 layoffs and Wayfair announced 1,650. Earlier in 2023, Maersk Shipping cut 10,000 jobs and Yellow Corp. looked to reduce its workforce some 30,000. It could be, of course, that other, smaller employers are taking up any slack caused by layoffs in larger firms, but it should raise some skepticism about the payroll statistics filling the headlines.

The safe forecasting resolution of this otherwise puzzling mix of information would hold that these separate and contradictory readings will move toward each other and in time create a picture that is neither as strong as the headlines suggest nor as weak as some of these other insights suggest. Past such resolutions, however, suggest that such a safe course is not really very likely. When in the past such contradictory evidence has appeared, the resolution usually consists of a lurch in one direction or the other. More data will either confirm the payroll picture of strength and the consensus outlook that has formed around it or will contradict it. Therein lies the danger in this situation for such contradictory news will require a radical change in thinking and an unsettling market adjustment.

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