US Job Markets

Key Points:

·    From time to time, the stock market will obsess about a particular data point or macro indicator – the US labour market being one.  Is it signalling ‘slower growth’, ‘slow growth’, or something more worrying?

·    The market takes notice of the non-farm payrolls, despite this being a highly volatile measure of employment, one subject to revisions and impacted by random factors such as strikes.

·    Last week, this and the ISM manufacturing index (also a highly volatile and increasingly an unreliable guide to the US economy) both came in lower than expected, which triggered a wall of worry over the US economy.

·    One way to improve our reading of the significance of this data is to look at both non-farm and the ADP employment guide, focusing just on the private sector (using the average of these measures over the last three months). By doing this, it removes some of the distortions and volatility, but not all.

·    What this shows is that the jobs market is indeed slowing from the post-Covid boom, and is now trending towards the bottom part of the pre-Covid range, when GDP growth was still solid.

·   What we don’t know is what happens next?  Job data should be a lagging indicator, while elsewhere (ISM Service, retail sales, average hours worked) are indicators that growth remain solid.

·   However, this has helped create an atmosphere of uncertainty, which markets do not like. This would suggest diversification and risk management remain key elements of portfolio construction.