Economic Data Tracker –
Solid job gains but cooling is evident

Economic Data Tracker

November 4, 2022

Our weekly view on the economy including rationale on GDP, jobs report, and Fed policy decisions. Download the entire weekly edition to view timely charts and data providing a comprehensive picture of how incoming economic data affects our economic outlook.

Trend watch and what’s new this week

Within the activity-based data, we have replaced the community mobility chart with the intermodal freight carloads chart (slide 6). Alas, the community mobility data, which was based on randomized smartphone location tracking data, is no longer available. It was initially released to help public health officials combat COVID-19, providing some insight as to how much people were abiding by lockdown mobility restrictions in public spaces. For us, it helped illustrate how Americans moved about their lives. We will continue to search for new data sources to gauge economic activity.

It appears that the effects of Hurricane Ian have cycled through on the activity-based data (slides 5 and 6). However, typical seasonality has kicked in, pulling activity lower as weather gets cooler. For instance, restaurant bookings dropped 9.9% compared to pre-pandemic levels, while air passenger counts dropped 7.6%.

October posts solid job gains, but cooling is evident

U.S. payrolls increased in October by 261,000, above the consensus of 200,000, along with upward revisions to the September figures. Yet, there were multiple markings of cooling conditions. The six-month average slipped to 347,300, the slowest six-month pace since the reopening period in 2020.

On slide 7, the unemployment rate rose to 3.7%, erasing the September decline. It was coupled with a decrease in the labor force participation rate. We also show the industry results for October.

On slide 8, average hourly earnings grew 4.7% from a year ago, the slowest year-over-year pace in 14 months, but well-above the pre-pandemic rate of 3.0%. The pace for rank & file workers is also tapering.

Supplementary employment data solid, too

On slide 9, we revisited temporary staffing. Staffing levels have rebounded to match the all-time high, and underscore continued strong demand and employment trends. It’s particularly notable that it occurred outside of the holiday season. In a separate report, the number of temp workers also reached an all-time high.

On slide 10, we also revisited initial claims. After steadily recovering from the pandemic, initial claims continue to run below the pre-pandemic three-year average and hovering near 50-year lows.

On slide 11, we take a deeper dive into productivity, which has been punched down due to job churn caused by the “Great resignation.” That has also boosted labor costs, driving some inflationary pressure.

Round up of other economic data

On slide 12, we dig a little deeper into third quarter gross domestic product (GDP), which rose 2.6% on an annualized basis. We show the composition, with the biggest positive impact coming from net exports.

On slide 13, we revisit rail freight volumes, which have remained solid through October. The 3-month average has stabilized in recent months and remains above the pre-pandemic 3-year average.

Lastly, on slide 14, we show that U.S. economic data is now coming in roughly as expected after missing expectations for most of the summer and fall months. 

Our take

Labor market conditions are clearly cooling but remain solid as evident by headline job growth. Thus, inflationary pressures aren’t fading fast enough, which keeps the Federal Reserve (Fed) on the hot seat. This report may keep another supersized rate hike of 0.75% on the table at the next Fed meeting on December 14.

However, we believe that there’s something else afoot – a possible shift in thinking with respect to staffing levels at some firms, which could blunt job losses during the coming recession.

While there has been a marked uptick in outright layoffs in recent months, there appears to be an increasing trend of firms using attrition—so-called “hiring freezes”—or ratcheting back on hiring plans, particularly large companies. Neither of those spells dramatically higher job losses and an unemployment rate north of 7.7%, which is the average peak level during recessions since 1950 (excluding the pandemic recession that hit 14.7%).

Large and small companies have told us that they are reticent to let workers go given the difficulty finding workers since the pandemic. Moreover, other companies have expressed ongoing wage concerns, whereby laying off workers then replacing them may ultimately prove more costly than simply holding onto their employees and riding out a recession. While these are anecdotal points, such a shift could hold down job losses. Perhaps this is what is occurring with the construction industry.

At the very least, the uptick in layoffs isn’t being reflected yet in the new weekly jobless claims, which remain near historic lows (slide 10). Our hunch is that some of these folks have found jobs elsewhere, bypassing the cumbersome jobless claims labyrinth. It is further corroborated by a private temp help staffing index, which popped to 108.7 in the latest week, which is a fresh all-time high (slide 9).

It is important to note that job losses and the unemployment rate are lagging indicators. As such, the unemployment rate typically peaks after a recession is over. For instance, the Great Financial Crisis recession ended in June 2009, but the unemployment rate didn’t peak for another four months until October 2009. A more extreme example was the 2001 recession, which ended in the fourth quarter of ‘01, but the unemployment rate peak occurred 18 months later in September 2003.

Accordingly, while it’s too early to definitely say “the rise of the unemployment rate will be less than the average recession,” we are fairly confident that the coming job losses within the next twelve months will likely be surprisingly less than most people expect.

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