Update US Labour Market Dashboard

Transcription

1 Update US Labour Market Dashboard Momentum has slowed somewhat since the start of the year A very poor May US payrolls report convinced the Fed to keep its rates unchanged in June. Three months later, the Fed is back at the same point. According to comments from various Fed governors, a rate hike is on the table next week, even as we expect another postponement to December. For the latest developments on the labour market front, we take a look at our Labour Market Dashboard ahead of next week s FOMC meeting. Following the dip in April and May, growth in US non farm payrolls accelerated sharply in June and July (to respectively and ). The latest report ahead of the FOMC meeting was however more mixed with payrolls growth slowing to in August. In recent months, there has been huge volatility in the payrolls data, probably due to seasonal adjustment issues, but overall the trend remains encouraging with the three month moving average (75 000) still above our target of The unemployment rate dipped in May to.7% as people gave up looking for a new job. In June, the unemployment rate picked up again to.9% and has been stable since. In the meantime, the participation rate picked up again to 6.8% off its low (6.%) reached last year, but remains below its recent high (6% reached in March). Together with the headline rate, also the U6 unemployment rate has stalled recently, suggesting that the US labour market recovery has lost some of its vigor. Also the downtrend in the long term unemployed share has stalled, adding to this picture. In line with the non farm payrolls, also the JOLTS job openings report showed a weakening in labour market conditions in April and May. While the job openings rate is back at its record high, hires continue to lag, remaining below its recent high and our target. In the coming months, we look out whether the renewed acceleration in job openings will also give a boost to hires. A quick look at the table below confirms our view that the momentum in the US labour market recovery has slowed somewhat recently. Six of our ten indicators stabilized, while two improved and as many weakened. Five of our ten indicators have met our self defined target, as many as in our previous report. The hires rate is close to reaching our target, while the four others are still some way off. Although US labour market recovery has slowed, a large majority of FOMC members agree that the Fed has broadly reached its target, even as some governors correctly see some residual slack. Therefore, the FOMC won t focus on the job market next Tuesday, but more on inflation and financial and economic risks and the timing of a rate increase. Joke Mertens, KBC Dealingroom Target Worst Last Previous Diff. With Target Latest Development m Moving Average Payroll Employment 6, 8,0 5,0 75,0 75, Unemployment Rate (U),9,0,9,9 0,0 0,9 U6 Unemployment Rate 8,8 7, 9,7 9,7 0,9 0 9,7 Long term Unemployed Share 9, 5,5 6, 6,6 7,0 0,5 6, Participation Rate 66, 6, 6,8 6,8, 0 6,8 Job Openings Rate,0,7,9,8 0,9 0,,8 Job Hires Rate,8,8,6,6 0, 0,6 Job Quits Rate,,,, 0,0 0, Layoffs/Discharges Rate,,9,, 0, 0, Average Hourly Earnings Y/Y,5,6,,7, 0,,6 Target = our self defined target is the average of the period Fed target: The Fed estimates the unemployment rate with maximum sustainable employment is currently around,9%. Therefore we define this as our target. Fed target: Yellen said in the press conference after the March 9 FOMC decision that with % inflation and productivity growth they have, wage inflation of between % and % would be normal. Therefore we define our target at,5% Due to the volatility in the payrolls data, we preferred to take a 6 month moving average for this indicator instead of a month moving average Table : Overview Yellen Labour Market Dashboard P.

2 Table: Definitions of the Yellen Labour Market Indicators Yellen Labour Market Indicators Description Payroll Employment Net monthly change in number of employees on business payrolls Unemployment rate Number of unemployed persons as percentage of the labor force U6 Unemployment rate Unemployed & Marginally Attached & Employed Part Time For Economic Reasons As part of the Civilian Labour Force Long term Unemployed share Share of Unemployed who have been out of work for 7 weeks or longer Participation rate Total labor force as a percent of the working age population Tracks the number of job openings in an economy as a percentage of paid employees. Includes Job Openings rate newly created or unoccupied positions where an employer is taking specific actions to fill these positions. Job Hires rate Workers hired as a percentage of paid employees Job Quits rate Tracks voluntary job separations initiated by the employee as a percentage of paid employees. Layoffs/Discharges rate Layoffs and discharges as a percentage of paid employees (involuntary job separations initiated by the employer) Average Hourly Earnings Total hourly renumeration (in cash or kind) paid to employees in return for work done 550 Payroll Employment Unemployment Rate (U) average Payroll Employment Fed target Unemployment Rate (U) After a strong rebound in June and July, growth in US nonfarm payrolls slowed in August, to 5 000, below market expectations and the recent trend. The month moving average (75 000) remains above our target of (average ). In August, the US unemployment rate stabilized at.9% for a second straight month, in line with the Fed s target. The downtrend in the unemployment rate has slowed recently as more Americans are returning to the labour market. P.

3 0 U6 Unemployment Rate 50 Long term Unemployed Share U6 Unemployment Rate average Long term Unemployed Share average In line with the headline rate, also the downtrend in the U6 unemployment rate has slowed recently. The U6 unemployment rate stabilized at 9.7% in August, continuing its recent stabilization phase and remaining almost % above our target of 8.8%. The U6 unemployment rate includes the marginally attached and part time workers for economic reasons. After an uptick in July, the long term unemployed share (share of unemployed who have been out of work for 7 weeks or longer) dropped in August, from 6.6% to 6.%, but remains well above our target of 9.% ( average). 68 Participation Rate ,5,5,5 Job Openings Rate Participation Rate average Job Openings Rate average After having dropped significantly in April and May, the US participation rate picked up again in June and July, before stabilising at 6.8% again in August. The low is probably behind us, but the uptrend has slowed somewhat since April. The job openings rate picked up again in July, from.8% to.9%, copying its record high. The job openings rate continues to hover around its record high and well above our target of.0% ( average). P.

4 ,6 Job Hires Rate,,,8,6,,,8,6,7 Job Quits Rate,,,8, Job Hires Rate average average Job Quits Rate Despite record high job openings, the hires rate continues to disappoint and stabilized at.6% in July, below our target of.8%. In the coming months, we look out whether hires will pick up again. The gap between job openings and hires indicates that firms have difficulties to find skilled workers, a development Fed policy cannot change. Job quits tend to give an indication on the health of the labour market as workers will only quit their jobs if they have a decent chance to find another. The job quits rate stabilized at.% in July, in line with our target (average ), indicating that workers are confident in leaving their jobs while firms are also becoming active in recruiting workers away from their competitors.,8,6,, Layoffs/Discharges Rate,5,5 Average Hourly Earnings Y/Y Layoffs/Discharges Rate average Average Hourly Earnings Y/Y Fed Target Layoffs/Discharges picked up sharply at the start of the recession, but dropped again soon afterwards. In July, the layoffs rate stabilized at its record low of.%, below our target of.% (average in the period). The drop is an encouraging sign that the labour market remains strong. In July, growth in average hourly earnings (Y/Y) picked up to.7% Y/Y, its strongest pace of growth in 7 years, but slowed again in August, to.% Y/Y. While there is some volatility, the uptrend remains intact, although wage growth is still well below our target of.5% Y/Y. P.

5 Contacts Brussels Research (KBC) Global Sales Force Piet Lammens Brussels Peter Wuyts Corporate Desk Joke Mertens Institutional Desk Mathias van der Jeugt France Dublin Research London Austin Hughes Singapore Shawn Britton Prague Research (CSOB) Jan Cermak Prague Jan Bures Petr Baca Bratislava Research (CSOB) Marek Gabris Bratislava Budapest Research David Nemeth Budapest ALL OUR REPORTS ARE AVAILABLE ON This non exhaustive information is based on short term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice. P. 5