Friday, March 7, 2014

Employment Growth Is Slowing Again

The following chart shows the 12 month moving average of the average annual growth rate in nonfarm payrolls (establishment survey), civilian employment (household survey), and aggregate weekly hours of private production and nonsupervisory employees (establishment survey).

Click to enlarge.

This chart is basically a smoothed summary of 3 different ways to look at the overall employment trend.

1. We failed to leave the channel to the upside. In fact, we turned downward right on schedule (bouncing right off the channel's ceiling).

2. Employment growth has been slowing in a fairly predictable way since December of 2012. Contrary to popular expert financial opinion, this downtrend cannot be blamed on this winter's weather. It's been going on for more than a year.

As a side note, aggregate weekly hours are important. If more people are working but each one works less, then the headline employment numbers are actually weaker than they appear. This chart factors that in to some degree. Some might argue that I should be factoring it in even more than I am. A mere one third of the smoothed summary may not do it justice.

In any event, I firmly believe that we are in the late stages of this business cycle and I'm fairly comfortable with my recession by October of 2014 prediction. For what it is worth (not much), I do not see enough evidence here to change my estimate.

Keep in mind that my estimate started as a "fool's game" prediction and it still is. I have made no investment decisions based on attempting to time the next recession. As a permabear since 2004, my decisions were primarily focused on locking in long-term real yields over the long-term (TIPS and I-Bonds). To date, I have no complaints.

Please don't read too much into the chart. Yes, there is plenty of downside risk here. Yes, we are near the top of the channel and falling again. However, there are no sure things. As Warren Buffett once said, "If past history was all there was to the game, the richest people would be librarians."

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart


Troy said...

I just thought of what's probably biasing my opinion.

My last 5 years in Japan, my pay was being filtered through several bureaucratic layers but coming from stimulus spending the government was doing to encourage science & technology.

I didn't suss this out at the time but the projects the very small company I was working for got more and more obvious -- a sewage zapping game for kids to play at a regional water treatment facility . . .

Japan was going to deficit-spend as much as necessary to keep their economy from collapsing under their bad debt crisis.

US M2 (blue), JP M2 (red) shows Japan's doubled 1980-1990, which was their former high-growth high-debt regime that blew up in 1990-91.

shows timing and scale of BOJ intervention vs. Fed.

Troy said...

activity rate (working pop), blue = US, red = Japan, green = Germans

hmm, I'm like half German, maybe they'll take me.

fried said...

I know you watch retail closely, how about a bit of good news..LLBean says it had a record year, with profits up and it authorized an 8% bonus for all full-time workers. Also said it plans to hire 100.
Bad weather has been their good news.

Stagflationary Mark said...


hmm, I'm like half German, maybe they'll take me.

The Germans certainly make a fantastic vacuum cleaner. We love our Sebo.

You can vacuum up a sock with no damage to the vacuum cleaner or the sock. It just gets dropped right in the bag.

That's not why we bought it though. We replaced our 15+ year old Hoover with a newer model and it died in a smoke and flashing light and billowing black smoke a mere 6 months later. Fortunately, Costco took it back no questions asked.

Rather than repeat the process, the decision was made to buy something that might actually last us for the rest of our lives. So far, so good.

Stagflationary Mark said...

Oops. Rearranging sentence failure! Smoke and light and smoke and stuff. Hahaha! :)

Stagflationary Mark said...


Bad weather has been their good news.

Picture how much retailers would complain if the weather never changed. There would be no swimsuit season for hot summers or parka seasons for cold winters!

All this talk about weather impacting vehicle sales makes me wonder too. Did sales of vehicles best able to deal with the winter not get some sort of boost as well?