The United States has the world's largest labor market and employment is a barometer for the US economy. Analysis of US household disposable income shows that over 70% of income comes from wages. People have income first, then spending. And consumer spending creates economic growth.
Therefore, analyzing the Employment Reports released by the US Bureau of Labor Statistics at the beginning of each month is crucial for investors and policymakers. Decoding key labor market indicators allows officials to better understand the current state of the economy, thereby making timely policy decisions.
In today's article, Viet Hustler will provide readers with an overview of US labor market indicators, along with the predictive significance of those indicators for the economy.
FREE SEMINAR: How to Protect Your Account from Economic Risks
By Steve Le - Monday, 5/13/2024 4PM New York Time
In the current volatile economic situation, protecting your account is extremely important but doing it effectively is not easy. In the free seminar on Monday, Steve Le, Founder of Viet Hustler, will delve into important topics related to Hedging and Diversification to help everyone protect their accounts from upcoming macroeconomic risks.
Knowledge Exchange:
Basics of hedge and how to identify assets that need to be hedged
Effective hedging tactics
How to achieve optimal diversification
Types of assets and strategies to protect accounts
How to Join:
Join Discord via link
Log in or create a Discord account if you don't have one
Click on the event link here to join at 4PM New York 05/13
Note: The session will not be recorded and uploaded to Youtube.
Employment Report released by the Bureau of Labor Statistics (BLS report/Non-farm payrolls)
The Bureau of Labor Statistics (BLS) releases the Employment Report at 8:30 AM (ET), first Friday of each month.
This report is based on household surveys (Household survey) and employer surveys (Non-farm payroll - Payroll report).
Report estimates:
Number of payroll employees in the US economy,
Average weekly working hours and
Average hourly earnings
Unemployment rate.
Components in the BLS Employment Report
Non-Farm Payrolls (NFP)
The Non-Farm Payrolls report (NFP - Non-farm Payrolls) is a survey of the number of labor participants in industries excluding agriculture, military, and non-profit organizations.
Nearly 131,000 businesses and government agencies, equivalent to about 670,000 work locations, are surveyed monthly to collect information.
Significance of the NFP report
A sudden increase in job numbers may raise inflation concerns
Strong job growth + inflation: Fed may consider raising interest rates + quantitative tightening (QT)
When job numbers drop sharply: companies cut staff due to economic recession.
Consumer spending on goods and services will weaken, leading to increasing difficulties for the economy.
=> Central bank policies: cut interest rates, quantitative easing (QE) or other consumer stimulus measures.
April NFP report shows lowest job growth in 6 months, +175,000 jobs, nearly half compared to previous month (315,000)
Unemployment Rate and Labor Force Participation Rate
Unemployment rate is closely related to consumer spending and economic growth:
High unemployment rate: labor supply > labor demand => economy in trouble => reduced consumer purchasing power due to lower income.
=> Recession due to declining consumption…
Low unemployment rate: labor shortage (supply < labor demand):
When labor supply < labor demand from businesses: labor costs (people's income) increase => people spend more heavily
=> Inflation increases from both the seller side (due to high costs) and the demand side (high consumer demand.
Calculation formula:
Unemployment rate = (number of people in the labor force but unemployed / total labor force) * 100%
April unemployment rate increased from 3.8% to 3.9% , - the highest since January 2022 - higher than expected.
In addition to the unemployment rate, labor force participation rate and underemployment rate are also 2 indicators to watch:
Labor force participation rate: % labor force over total working-age population (15 years and older).
An increase in labor force participation rate will help increase labor supply => limit wage growth.
Currently: Labor force participation rate unchanged at 62.7% , women increased to 57.7% - highest since Covid.
Labor force participation rate dropped sharply compared to pre-pandemic due to:
Sharp decline in the number of working-age people in the US (16-64)
Covid pandemic caused many to retire early and reduced immigration
Increased unemployment benefits, stimulus packages and tax credits, financial support made many people not feel pressure to work…
Underemployment rate (underemployment): % of people doing jobs not commensurate with their qualifications and abilities / total employed labor force.
A high rate means labor supply > labor demand: workers have to accept jobs below expectations due to high market competition….
Wage growth and average weekly hours
Wage growth reflects labor supply-demand balance because wages are labor costs: this is also a key indicator affecting inflation and the economy
High wage growth: Labor supply < labor demand ... workers have more job choices and better bargaining power for wages.
High wage growth encourages consumer spending => inflation.
Conversely, declining wages ~ labor supply > labor demand … businesses have more hiring options and don't need to offer high wages.
Wage decline => Reduced consumer spending ~ deflation.
Current data:
Hourly earnings growth in April at +3.9% YoY (< expected 4% and 4.1% previous month), lowest since June 2021.
However, this is still a high growth figure compared to historical data — showing that wage growth pressure on inflation persists!
Average weekly hours in April dipped slightly, indicating easing labor demand
Read more about April jobs report details at: Labor report (NFP): Job growth lowest in 6 months - Unemployment rate rises
JOLTs job openings report
Job Openings and Labor Turnover Survey (JOLTS) by the U.S. Bureau of Labor Statistics measures new hires/quits and layoffs nationwide.
Indicators in this report include:
1 - Job openings (new job postings: job openings) is a leading indicator for the payroll report and unemployment rate.
If this figure decreases: employers have no demand for hiring additional workers, and may even be laying off staff
=> the economy is slowing down ~ businesses are scaling back
If this figure increases: businesses need a large number of workers to meet high workloads on time
=> businesses are expanding production scale, the economy is expanding…
Job openings in April decreased to 8.49 million, lower than forecast 8.88 million, lowest since February 2021
Number of hires decreased to 5.5 million, lowest since April 2020
2 - Number of quits: indicates the tightness in the labor market - whether workers are confident in finding new jobs.
Number of quits in April also decreased to 3.33 million, lowest since January 2021
=> Workers have reduced confidence in their ability to find other jobs.
The gap between job openings and the number of unemployed is very large but gradually narrowing.
3- Layoff rate: directly indicates whether businesses are expanding production or contracting.
The layoff rate has currently decreased to 1.53 million, lowest since December 2022.
There is turnover across sectors:
Workers in traditionally lower-paying sectors: entertainment, hospitality, and retail, are most likely to quit.
In higher-paying sectors, the number of employee quits is lower.
Unemployment claims and layoff notices
Unemployment claims
Unemployment claims are statistics reported by the US Department of Labor at 8:30 am ET every Thursday. There are 2 types of unemployment claims:
Initial unemployment claims, including those filing for the first time
A high number of initial unemployment claims indicates the labor market is deteriorating and many people are being laid off
FYI: During the COVID-19 pandemic, initial unemployment claims surged to historic levels as companies cut staff
More than 30 million Americans filed for unemployment from mid-March to 04/30/2020.
Unemployment rate reached 14.7% in April 2020.
Initial unemployment claims for the week ending 05/05 rose to 231,000 (> forecast 212,000), highest since August.
Continuing unemployment claims, including those unemployed who have received unemployment benefits in previous periods
Number of continuing claims for the week ending 05/05 rose to 1.785 million.
WARN layoff notices
WARN is a federal law requiring employers to provide advance notice to employees about plant closings or layoffs.
Since WARN is a federal law, different states may enact their own state WARN acts to suit each state's laws.
California WARN requires employers to give 60 days' advance written notice to employees before conducting layoffs of 100 or more workers.
WARN layoff notices are also a leading indicator and often precede initial unemployment claims.
The data shows whether businesses are reducing their workforce or not…
Conclusion
The US labor market, with numerous data points such as the BLS Employment Report, JOLTs, or unemployment claims, serves as a compass guiding the economy. By tracking factors like the unemployment rate, labor force participation rate, wage growth, and job openings, investors and policymakers can assess the health of the economy, workers' bargaining power, inflationary pressures, and consumer spending trends.
It can be seen that the current US labor market is showing signs of strain as the number of new jobs created has fallen to the lowest level in over 3 years. The quit rate has also declined sharply as people lose confidence in their ability to find other jobs. The above figures are all barometers for the US economy, indicating a slowdown after a period of overheated growth.
Analyzing the Employment Reports released by the US Bureau of Labor Statistics at the beginning of each month is an important task for investors and policymakers, to understand the state of the economy and thereby develop the most suitable strategies for their portfolios.
Comments (1)
Giờ mới có thời gian đọc. Hay quá. Cảm ơn tác giả và nhóm!!!
Login to comment