Today’s jobs report was better than expected, with 315,000 jobs created. We have had negative reviews from 107,000 to the previous two reports combined, and the unemployment rate rose to 3.7%. What does this mean for the labor market and the economy as a whole?
The labor market is still doing well as the need for labor continues in America. Jobs in America are always out 11 million, and data on unemployment insurance claims have stabilized in recent weeks. Let’s take a look at the US labor market.
Below are the areas where the report indicates jobs have been created, and the data on construction job growth is encouraging to see. Even though builders will stop producing new single-family homes that aren’t already under contract, they need the labor to finish homes that have been started or are under contract and haven’t started yet. In addition, keep in mind that multi-family construction has been good this year, with rental demand still solid.
Here is a breakdown of unemployment rate and educational attainment for those 25 and older:
—Less than a high school diploma: 6.2%.
—High school graduate and no college: 4.2%
—College or associate degree: 2.9%
— Baccalaureate and above: 1.9%
The unemployment rate has increased for those without a bachelor’s degree or higher. Labor force growth also increased in this report. When people talk about rising unemployment rates in a positive jobs report, it tends to mean that the growth in the labor force of people looking has also increased, as we have seen today.
If the unemployment rate drops below 3%, I tend to view that as negative because labor force growth is not very strong. People are being fired and hired every month. This is why neither unemployment insurance claims nor the unemployment rate can ever truly be zero.
For the rest of this century, if productivity remains low and our workforce growth slows even further, the need for labor will be transparent in parts of the country that are short of young people.
For me, it’s always simple: the economy is demography and productivity, and the rest is philately. Housing economics is about demographics and affordability. But for jobs, we are understaffed in parts of the United States with a pool of older people leaving the workforce. Those immigrants and robots that were supposed to take all the jobs didn’t make it. Job postings are over 11.2 million and much higher than what we had at the end of the great financial recession, which was a little outdated 2 millions.
Health of the economy?
My sixth recession red flag pattern was fully lifted on the same day as the last jobs report. My model is not designed to lag or rise when we are in a recession: it is created as a progression model to show you the history of economic cycles and when and when not to worry about a recession.
For example, I never had all six red flags of recession during the previous economic expansion of 2010 until COVID-19 hit, which was the longest economic and jobs expansion in history. . Economic data was improving at the end of 2019 and in February 2020 housing broke.
However, the shock of COVID-9 was far too great to prevent a brief recession. I had to create a pandemic-based recovery model; it was crazy and then some. However, the America is Back recovery model worked well in 2020 and I retired it on December 9, 2020.
So now that all the red recession flags are up, what am I looking for? The next step is to see total consumer demand hit so negatively that it will drive down job vacancies and increase unemployment insurance claims. We can then call it a job-loss recession in the United States, following the pattern of the recessions we experienced after World War II.
Why is housing in a recession but not yet the economy? Recessions are very simple to understand. These things tend to fall during a recession, and we already see them fall in housing, but not in the economy.
Recently on CNBC, I said I agree with those who say housing is in a recession. I have to – I raised my fifth housing recession red flag in June of this year.
How is consumption hardest hit? Well, interest rates on credit cards, home equity margins and mortgage rates are much higher than before 2022. With higher interest rates and higher inflation data, it this is a test for American consumers, who have not been tested this century because the growth rate of inflation was low before 2021.
I will continue to follow consumer data and unemployment insurance claims data more and more at this point and will no longer focus on these six red flags of recession. The latest flag raised was that the leading economic index fell for the fifth consecutive month. The first month was minor, I need to see four to six months of decline to turn it up, which I did last month.
Overall, the labor market is functioning well. Unemployment insurance claims under 300,000 using a four-week moving average, still show that we don’t have any real stress in the labor market yet.
Traditionally, this line of data is on the rise when we are in a real recession, as companies are forced to lay off people to ensure they are in line with their business goals. We’re not there yet, but it’s time to think about it. The last time my six recession red flags went up was at the end of 2006, and the job loss recession only happened in 2008, so we may have time until what the consumer breaks.
The Federal Reserve is using the labor market as a cover for their aggressive rate hike rhetoric, which I still believe is mostly emotional. Some say they won’t even cut rates during a recession if inflation is high; remember, these people talk a lot to try to communicate with the markets. I tell you this because members of the Federal Reserve were very upset that mortgage rates fell and stocks rose. So they decided to have a united front when they told the media that they were serious about raising rates and holding them until inflation subsided.
A final note: how can we prevent a recession? History is not on our side once the six red recession flags are lifted. However, due to the crazy data this COVID-19 recovery had provided us with the wild data whiplash effect, I came up with a plausible theory.
With that in mind, here are the two ways to avoid this recession:
1. Rates go down to put the housing sector back in order.
2. Inflation growth rate falls and the Fed stops raising rates and changes course, as it did in 2018.
Can this happen? We have a backdrop that says it’s possible. If the Russian invasion finds a peaceful solution and China does not invade Taiwan, then some of the variable X factors are removed with the supply distribution. For now, we take the data day by day because we want to be the detective, not the troll.