Jobs Report Rollercoaster: Gains and Trends

Folks, hold onto your hats because we’ve got another wild twist in the jobs report saga! Brace yourselves for the shocking revelation that the US added a mind-boggling 339,000 jobs in May, nearly doubling the median estimate and shattering all forecasts. I kid you not, this is not some alternative universe; it’s the reality we’re living in.

Now, you might be thinking, “How did everyone get it so wrong? Were they just throwing darts at a board?” Well, my friends, the experts were expecting a modest drop in payrolls, with the consensus settling around 195,000. But guess what? The actual number of jobs added soared past all expectations like a rocket blasting into the stratosphere.

But before we break out the confetti and celebrate this seemingly incredible news, there are some troubling details we need to address. You see, while the Establishment survey, the one that showed those eye-popping job gains, was a blowout beat, the Household survey, which measures employment through a different lens, took a nosedive. It plummeted by a whopping 310,000 jobs, causing the gap between the two surveys to widen to near record levels.

As a result, the unemployment rate, which had been trending downward, shot up from 3.4% to 3.7%. That’s right, folks, we’re going in the wrong direction. And here’s something that will make you scratch your head: black men, who had been experiencing a surge in job gains and reached a 16-year high in employment back in March, are now facing a reversal of fortune. It seems the tides may be turning, my friends.

Let’s dig a little deeper into the numbers, shall we? The youngest and oldest age groups, those under 24 and over 55, saw their unemployment rates skyrocket in May. It’s as if the job market is playing a cruel game of musical chairs, leaving these groups scrambling for employment.

Now, here’s where things get a bit fishy. One possible explanation for the disparity between the surveys is the birth-death model. No, it’s not some science fiction concept; it’s a statistical assumption made by the Bureau of Labor Statistics (BLS) about how many jobs were created by new businesses. These assumed jobs, mind you, are not actual jobs. So, we have to question the reliability of these numbers.

But wait, there’s more! Despite the jaw-dropping jobs figure, both full-time and part-time workers actually decreased in May. It’s like we’re living in an episode of “The Twilight Zone,” folks. How can this be? Something just doesn’t add up.

Let’s shift our attention to wages for a moment. The sequential print, which measures the change in average hourly earnings, came in as expected. However, the year-over-year increase fell slightly short of expectations. Wage pressures, it seems, are not building as strongly as some would have us believe.

In terms of specific industries, there were some notable job gains in professional and business services, government, health care, and leisure and hospitality. But here’s a head-scratcher for you: the construction sector added a significant number of jobs, including in heavy and civil engineering construction. Now, call me crazy, but does it make sense to embark on a construction worker hiring spree when mortgage rates are at 7% and troubles in CRE market? I’ll let you ponder that one.

As we delve into the commentary surrounding these numbers, there’s a sense of uncertainty. Some strategists believe the strong jobs report could prompt the Federal Reserve to hike interest rates in June, with a possibility of another hike in July. But not everyone is convinced. Market sentiment remains divided, with some traders slightly increasing the probability of a rate hike this month, while others maintain that the details of the report don’t warrant such a move. It’s a classic case of Wall Street analysts trying to decipher the tea leaves and make sense of a chaotic economic landscape.

Gregory Faranello, the head of rates trading and strategy for AmeriVet Securities, weighed in on the situation. He believes that the increased layoffs we’re seeing are just the beginning of a larger trend. Faranello doesn’t think this jobs report changes the dynamics enough to warrant a rate hike at the upcoming Fed meeting. And you know what? He might be onto something here.

Another voice in the conversation comes from the chief rates strategist at BBG. This individual takes a more hawkish stance, arguing that while more rate hikes may not be necessary, additional tightening measures probably are. The challenge for the Fed, in this strategist’s view, is convincing the market that interest rate cuts aren’t on the horizon. Market pricing, with expectations of a hike followed by two rate cuts by January 2024, doesn’t align with the Fed’s desired tightening path. So, perhaps it’s time to rethink those expectations.

Now, there are always analysts who get so wrapped up in the nitty-gritty details of the report that they lose sight of the bigger picture. Peter Tchir from Academy Securities is a prime example. Tchir believes that the yield curve, specifically the difference between 2-year and 10-year Treasury yields, will continue to invert even more. According to him, it could reach levels as extreme as -85 basis points. But let’s be real, folks. Is the yield curve really the be-all and end-all indicator of our economic future? I highly doubt it.

Here’s the bottom line, my friends: instead of fixating on the absurdities of the payrolls report, we need to pay attention to the unemployment figures. Ian Lyngen, an expert at BMO, points out that when the unemployment rate deviates by 0.3% from its low point over the previous 12 months, it tends to spike even higher, ranging from 1.5 to 3 percentage points. That’s a sobering thought, isn’t it?

And let’s not forget Sahm’s Rule, named after former Fed board economist Claudia Sahm. According to this rule, if the unemployment rate increases by 0.5 percentage point within a year, we have an infallible recession signal on our hands. Well, folks, we’re getting pretty close to that mark. So, it’s time to be cautious and keep a watchful eye on the broader implications.

In conclusion, while the headline numbers of the jobs report may have dazzled us with their unexpected strength, we must remain skeptical and critical of the underlying trends. The disparity between surveys, the sudden reversals in employment for certain groups, and the peculiarities within specific industries raise red flags.

The Fed’s decision-making process, driven by these reports, becomes a delicate balancing act. Can they convince the market that rate cuts aren’t imminent? Will they address the rising unemployment rate and potential recession signals? These are the questions that demand answers.

So, let’s buckle up, folks, because the economic rollercoaster continues. The Biden jobs department has certainly delivered another twist in the plot. Stay tuned, stay vigilant, and always question the narrative.

Dennis Ivanov

A Talent Acquisition Architect and an advisor to Executive Leadership on Talent Acquisition strategies. From start-ups to global organizations, Dennis excels in designing impactful solutions that optimize talent acquisition and HR processes. With a competitive spirit and strong communication skills, he fosters continuous improvement and champions diversity and inclusion.

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