Economy · August 6, 2022

The merchants of the recession are shocked and horrified by this increase in employment

Yves here. I warned during my chat during my first roundtable, with Izabella Kaminska, hosted by Gonzalo Lira, that despite all the Twitter hype, the economy was probably not yet in a recession by NBER criteria, and it is the NBER that determines. But no one expected this working relationship. Note, however, that, despite the apparent strength, average real wages lag behind inflation. Low-end workers still don’t have bargaining power.

By Wolf Richter, editor of Wolf Street. Originally posted on Wolf Street

It wasn’t the hottest job growth ever, but it was great and surpassed the average pre-pandemic job growth. Employers added 528,000 workers to their payrolls in July and 2.79 million in the past three months. Wages have risen, but less than raging inflation, and the number of unemployed looking for work has dropped to its lowest level since 2000, on the verge of the dotcom crash.

It was a shocking and jaw-dropping disappointment for the recession traders out there who want a recession more than anything else because, according to their thinking, it would “cost” the Fed to pivot and start cutting rates – despite what the Fed actually says – and put an end to this horrible QT in a market that is dependent on QE and will suffocate under QT. They want the Fed to reverse the tightening even if it has only just begun (too late), so that stocks can continue to swell to the moon.

Someday we will have a recession – in the end there is always one. Pulling back from this raging inflation will likely require a recession, but a shallow recession may not be enough to get the job done as this inflation is becoming more and more entrenched.

But it is just very difficult to have an official recession with this type of labor market, with growing employment and soaring wages, and with falling unemployment.

The National Bureau of Economic Research (NBER) denounces recessions in the United States and the definition of the NBER has been the same for decades, it hasn’t changed, and its definition includes labor market metrics, some of which we have today.

This strength in payroll is supported by other data, such as the still historically high number of job openings that employers reported for June, along with the massive dropout and job jump among highly confident workers seeking better-paying jobs. and in the midst of aggressive hiring by employers to fill their jobs.

OK, startups that incinerate money are now worried about running out of money to incinerate, as getting new fuel to incinerate has become more difficult and they are trying to cut their money consumption rates by reducing their payroll. Among them are Robinhood and other former flying greats, some of whom have become heroes in my Imploded Stocks column, who have lost a great deal of money during their existence. But this is a small – and very crazy – corner of the job market, and the numbers of layoffs are tiny compared to the job market in general.

Overall, layoffs and resignations in June and previous months were at an all-time low. And there are still large-scale staff shortages in the health care system, school systems, airlines and many other sectors.

So the total number of nonfarm payroll workers increased by 528,000 in July to 152.54 million workers, a new record, which finally and for the first time beats the pre-pandemic high, according to the factory survey. Bureau of Labor Statistics today. And this number of workers on paychecks continues to catch up with the pre-pandemic trend (green line):

Workers, including the self-employed and entrepreneurs

Households reported that the number of people with jobs, including self-employed and entrepreneurs who are not captured in the above employer data, increased by 179,000 in July and 185,000 over the past three months to 158. 3 million.

Interestingly, the number of people on employers’ payrolls is on the rise, while households see a much smaller increase in the number of workers, which includes the self-employed and entrepreneurs. This may be partly due to the self-employed returning to regular work with a company, where employers report the earnings, but for families, the person has just switched from self-employed to a company payroll . And that would make sense amidst aggressive hiring by employers.

Dotcom’s lowest unemployed number

The number of unemployed actively seeking work fell from 242,000 to 5.67 million, falling below the pre-pandemic low and marking the lowest level since 2000.

The workforce is blocked

The workforce – people who work or actively seek work – fell by 63,000 in July, the second consecutive month of declines, to 163.9 million, essentially where it had been in February.

There has been a lot of thought about why the workforce got stuck. All sorts of logical reasons that work together are mentioned: the difficulty and expense of finding a nursery; the need to care for elderly relatives; excess mortality from 2020; health problems associated with covid; a massive wave of “pensions” from people who already have enough thanks to massive asset price inflation; and as I said, age, where older people who want to stop looking for work because they can’t get anyone in their industry to take them seriously (especially in technology), and when they stop looking for work, they quit work force. And the list of reasons goes on.

Many people, including the Fed, are now suggesting that the old normal workforce may never return, that there have been permanent changes in the job market that we are just trying to understand.

Wages for non-managers have risen, but are still being outstripped by furious inflation

Average hourly earnings of not management workers – programmers, waiters, teachers, police officers, engineers, construction workers, etc. – they rose 0.4% in July from June and 6.2% from a year ago to $ 27.45 an hour. This was the 10th year-over-year increase of more than 6% in a row.

These year-over-year increases of more than 6%, beyond the 2020 biases, were the largest since the beginning of 1982. But they were still outstripped by fast-paced inflation, with CPI inflation above 9%.

The report on the employed populationwhich tracks the percentage of people of working age who work, has risen to 60% and has been around the same range since March, but one percentage point below the 61% pre-pandemic range, which corresponds to the workforce freezes.

the unemployment rate in its narrowest definition – the percentage of people who are in the workforce but not working – has dropped to 3.5%, where it was before the pandemic. If the labor market weakens, this rate will rise, as it has done every time. But stay on the ground.

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