August 26, 2024

Taylor St. Germain:
Welcome to this episode of TrendsTalk. Today, I wanted to talk about employment. I wanted to talk about jobs. I’m still getting emails every day about that weaker than expected jobs report that came out a couple weeks ago. I know there was some concern in the stock market a few Mondays back. So I wanted to talk about our forecasts for Private Sector Employment today and how we’re interpreting some of what’s been said in the media around the jobs report and its implications for the broader economy.

So let’s first start off with some of the data that came out. It was the July jobs numbers. Now, in the Trends Report, we look at US Private Sector Employment. It’s a series that we forecast three years into the future. And so let’s talk about some highlights first. The media outlets suggested that weak employment drove some of that early August stock market dip. But from our perspective, employment performance was quite typical.

Another highlight I want everyone to keep in mind is that employment is a lagging indicator. And we expect employment growth to slow into late 2025 and then accelerate through 2026. So from an overall highlight perspective, everything we’ve seen taking place over the past few weeks as it relates to jobs and stock market is not unusual to us. Again, I suggest that you go check out our website, a blog that our principal economist, Deputy Chief Economist Jackie Green wrote all about the jobs in the stock market.

But I’ll share a little bit with you here today. So if we look at that July Private Sector Employment number in the 12 months through July, 12 month moving average, we saw that 12MMA coming at 134.5 million people. That is 1.7% above the same period one year ago. That 12MMA is still at a record high. So while that employment report was maybe weaker than analysts suggest, let’s not lose sight of the fact that the 12 month moving average of Private Sector Employment is at a record high.

Also, when we look at that month over month growth rate, it was right around median in terms of looking at all of the data history. If you look at the June to July percent changes. So that’s pretty normal too. And so overall, when we interpret the jobs numbers, these results are not concerning from our perspective. Really, they were expected. And given employment decisions, again, are often reactionary to the economy, employment is a lagging indicator. Employment does not tell us where the future economy is headed. It is a lagging indicator. And it’s so important to remember that don’t look at jobs as telling us where the economy is going. The economy tells us where jobs are going. And again, I think that’s really important.

Now, there is some softening and other employment metrics, slight increase in the unemployment rate, lower voluntary quit rates, and really a rebalancing of the number of employed people per job opening. That is a metric we’ve talked a lot about on previous TrendsTalk employment episodes. If you look at the number of employed persons per job opening, it is up to a .917. So even though we have seen some loosening in this labor market, we still don’t have a perfect replacement rate in terms of the number of people on the bench to fulfill these open jobs. The labor market is still tight.

So overall, we do expect employment to weaken in terms of its pace of growth, not contract, but we expect Private Sector Employment to slow down to 1.8% by the end of 2024 to slow down even further to 1.6% in 2025. But we’re not expecting a hard landing in Private Sector Employment, by 2026 we’re accelerating at 2.3%.

So, again, overall, yes, the labor market has loosened up a bit, and yes, that’s not a surprise to us. And we hope that businesses are taking advantage of some of this loosening because the economy will slow down into the second half of ’24. But we’re not expecting a GDP recession. And then as we move into ’25 and ’26, we see more robust GDP growth. We see more robust Industrial Production growth. So use some of this loosening in the Labor Market to your advantage to be hiring people now, to be training people so that when all of this demand starts coming back our way in ’25 and ’26, we’re prepared.

Again, I can’t say it enough. Jobs are a lagging indicator. It’s not a future indication of where the economy’s headed. We have leading indicators that tell us the future, and they’re not jobs. And the leading indicators that we’re watching are telling us the low point in the industrial economy is coming our way in the next quarter or two. And then there’s a lot of growth to be preparing for, for ’25 and ’26. We haven’t changed any of our macroeconomic outlooks here at ITR.

So keep calm, stay the course, be aggressive during the second half of ’24, whether it’s employment, whether it’s investing, it’s all about preparing for this demand that’s coming back in ’25 and ’26.

We’ll continue to update you on jobs and how this economy evolves. Thanks for joining me on this episode of Trend Stock. Certainly hope you found it helpful. Please remember to like and subscribe to TrendTalk wherever you listen to your podcast. And I’m looking forward to seeing you on the next one. Take care for now.