Thoughts on the Job Market

Michael Rudd, CFA | President, CEO & Portfolio Manager

Last week, we identified three areas of focus that we will be discussing over the rest of the spring. The interplay between these three major economic forces will impact all investors. They are somewhat related, and dependent on each other, so our discussion will sometimes seem circular, in that one topic leads to another. Three topics are:


  1. The trajectory of the economy and the potential for a slow-down / recession
  2. The Job market, its impact on corporate profitability (negative) and consumer spending (positive)
  3. Inflation and how the US Fed and financial markets interpret and react to data.

With respect to Item 2, there was some important data released today for the US job market. Job creation remains strong. Figure 1 presents some of the data released today along with data released over the past 2 weeks. The blue lines represent inflation pressure. Light blue is PCE inflation, which is the FOMCs preferred measure of inflation, and the dark blue line is today’s data for hourly earnings. You can see how closely they have moved together over the past year (i.e. wage inflation is correlated with overall inflation). The green line presents overall US job openings. As you can see, it has dropped after peaking, but remains high from a historical perspective (i.e. lots of open jobs result in higher wages).

Figure 2 presents underemployment data; currently unemployed workers, plus those part-time who would like a full-time job, plus those marginally attached to the labour force. This measure remains at an all-time low. We thought this was interesting because it provides another example of just how strong the employment market is in the US.

This means that, on the one hand, it is hard to see the US going into recession with such a strong employment market. Essentially anyone who wants a job can have one. On the other hand, we can see that a job market that is too hot would rationally stoke inflation from significant wage growth. A recession will probably come from breaking structural inflation with higher rates, and that means essentially creating unemployment. So far, it is hard to see where this will come from.

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