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Subliminal Messages in the Jobs Report

Subliminal Messages in the Jobs Report

May 09, 2022
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The U.S. economy added 428,000 jobs in April, matching job growth last month after revisions. The LPL Chart of the Day shows the 3-month average gain dipped from the highs from last year. “A softer trend could be the start of the Fed’s Goldilocks scenario of cooling demand without a hard landing,” explained LPL Financial Chief Economist Jeffrey Roach. Unemployment was unchanged at 3.6%. In this post, we look at the subliminal messages inside the underlying details of the jobs report.

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Two Categories Expose Underlying Drift in Job Creation

Two specific industries shed light on job market machinations. One subliminal message for the markets comes from the Leisure and Hospitality industry. Monthly job gains in this category slowed for the last five consecutive months. Excluding the volatility from the Omicron variant, the downward trend started last summer. The other message is within the Construction sector. Excluding the health-related distortion in January, monthly job gains in construction cooled from six months ago. These sectors are particularly important because we are now seeing exceptionally high churn in the Construction and Leisure and Hospitality sectors as workers chase higher paychecks. From the earlier Job Openings and Labor Turnover Survey (JOLTS), the labor market is extremely tight as quit rates are high, revealing that workers in many industries know they can likely get higher wages if they move from one firm to another. These categories may be a leading indicator of broader cooling in the job market.

Federal Reserve Likely to Continue on Projected Tightening Path

Job gains in April were broad based and with another good labor report, the Federal Open Market Committee (FOMC) can emphasize the imbalances to price stability over supporting labor markets. The accelerating pace of inflation is an obvious concern for committee members and a tightening labor market adds fuel to the fire. As job gains moderate and more people come into the work force, we could see the unemployment rate increase, removing some of the tightness of the labor market. Our base case projection is the FOMC increases rates again in June by 50 basis points (0.5%).

One Risk Is Lack of Qualified Applicants

The National Federation of Independent Business (NFIB) revealed that in March, roughly half of small businesses across America have few or no qualified applicants for current job openings. Moreover, businesses are raising total compensation to attract and retain workers. We see this as a risk to the inflation outlook if these imbalances remain and become embedded in the economy. But encouragingly, employment prospects are good and a strong labor market will help offset the impact of rising borrowing costs, especially for prospective buyers in a hot housing market.

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