Slowing job growth doesn’t mean a recession, but today’s jobs report tells me that the significant job gains we were accustomed to in the early part of the COVID-19 recovery period are ending, which ties nicely to how I thought labor would recover after COVID.
Even though the headline number on the report today beat estimates, we are entering a new phase of the economic cycle, which means you need to know where to look to get clues for a recession. The BLS jobs report data isn’t the best recession indicator, which we can all see since the recession of 2023 — forecast by so many — didn’t occur.
Here are my three key points on the labor market recovery since I retired my COVID-19 recovery model on Dec. 9, 2020:
1. Job openings should get to 10 million. (We eventually got to 12 million) We’re now down to 8.8 million.
2. We should get back all the jobs lost to COVID-19 by September of 2022. That checked off roughly on schedule, see here.
And the third is the most important one at this stage of the cycle:
3. If we didn’t have COVID-19, the total employment in America would have been between 157 million-159 million today. We are there now, and since population growth is slowing down, we shouldn’t have big labor reports going out, which will be perfectly normal.
Let’s take a look at today’s jobs report.
From BLS:Total nonfarm payroll employment increased by 216,000 in December, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued growing in government, health care, social assistance, and construction, while transportation and warehousing lost jobs.
Here are the jobs that were created and lost in the previous month:
In this jobs report, the unemployment rate for education levels looks like this:
Less than a high school diploma: 6.0%
High school graduate and no college: 4.2%
Some college or associate degree: 3.1%
Bachelor’s degree or higher: 2.1%
It’s jobs week, so we had four total reports. The job openings data was interesting because the quits percentage and hires are now below COVID-19 levels, which means the Federal Reserve is too restrictive with their policy today since the growth rate of inflation has fallen more than they thought.
However, the labor market isn’t breaking: jobless claims data is almost below 200,000. I will not go into full recession mode until this data line breaks over 323,000 on the four-week moving average. Don’t make the same mistake so many Wall Street people did in 2022-2023 by thinking a slowing down is a job loss recession. We aren’t there yet.
Of course, the 10-year yield had a wild day today. It shot up toward 4.08%, then fell to 3.96% after the poor ISM service print, and ended the day 4.05%. Some people might not understand yet how bad the ISM service print was, which could be one reason bond yields header higher later in the data.
Here is the chart of the 10-year yield before jobs Friday. The trend was going lower, but we hit a critical resistance level of 3.80%:
So, what do we make of the labor market after jobs week? Yes, it’s getting softer as the job openings/quit percentage data has been telling us. The significant job gain reports are past us now, and we are starting to get back to our regular pre-COVID-19 trend of job growth data.
Does this mean the labor market is breaking? No, but we don’t want the Fed to wait for jobless claims to break above 323,000 on the four-week moving average to cut mortgage rates. So, hopefully, the Fed realizes they overhiked and should be doing cuts to land the plane since the inflation growth rate has fallen faster than they thought.