The U.S Employment Data - Macro Musings !!

"To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don't, see things differently or do a better job of analyzing them - ideally, all three."

Fed Fund Futures closed the week with 28 bps of Rate Cuts priced into for 2024. We had a slew of employment data which is summarized below.

ADP numbers showed private employers added 152,000 jobs, though job gains slowed due to a significant decline in manufacturing and weaker hiring in leisure and hospitality. Pay gains for job-changers decelerated, with yoy increases dropping for the second consecutive month to 7.8%. Meanwhile, pay growth for job-stayers remained steady at 5% for the third month. These trends suggest a cooling labor market, with particular weaknesses in specific sectors and a slowdown in wage increases for job-changers.

Jobless Claims data

For the w/e June 1, initial claims for unemployment rose to 229,000, up by 8,000 from the previous week's revised figure of 221,000. The 4-week moving average decreased slightly to 222,250. The insured unemployment rate remained steady at 1.2%, with the insured unemployment number rising by 2,000 to 1,792,000.

JOLTS data reaffirmed labor market getting into better balance as Job Openings declined 296K following a decline of 458K in the previous month.

From 11 mio total openings in December 2022, number of job openings have steadily declined. The Vacancy Rate declined further to 4.84% , the lowest since Feb 2021 (peak 7.2%) and the ratio of vacancies to unemployed people fell further to 1.24 from previous 1.29 and peak 2.00.

For those who have been following my blog know that I keep going back to Governor Waller's speech to gain perspective of the labor market. He asserted that if the vacancy rate continued to fall below 4.50% , there would be a significant increase in unemployment rate and until such time the moderation in labor demand will likely play out through a decline in Job vacancies. This has broadly been playing out in the Employment data. The NFP Report showed Unemployment rate inched up a tad bit to 4.0% from 3.90% .

In May, total NFP rose by 272,000, following a downward revision of 15K to prior two month's data indicating robust job growth. Notably, AHE increased by 0.4% to $34.91, reflecting a 4.1% rise over the past year. This steady growth in various sectors, coupled with stable unemployment metrics, suggests a resilient labor market, albeit with sector-specific challenges and wage pressures. The overall unemployment rate held steady at 4.0% with 6.6 million unemployed individuals, reflecting a labor market that is relatively stable.

Having said that, the underlying NFP data was confusing as hell. While the establishment survey, showed strong job gains, the household survey showed Labor Force declining by 250K and number of people not in the labor force sharply rising to 432K.

Net Net, what I take home from the Employment Data release is while Job growth continues (strong gains in NFP), the overall demand for new hires has cooled, as evidenced by the declining number of job openings (declining Job Openings).

The Fed Fund Rate pricing for 2024 has been hovering between 25 bps to 50 bps of rate cut over the last 2 months. The Employment data has been moving in the right direction and as long as the direction is right, even though the timing may be uncertain, I would be looking to fade the opportunity if Fed Fund Pricing shifts to less than 25 bps of rate cuts into 2024.

This week, we will be closely watching the CPI and PPI release, the FOMC Rate Decision and Jobless Claims data.

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