January Employment

The last two months, the word "disappointing" has gotten thrown around a lot.  The great thing about employment reports, for a speculator, is that there are enough independent and noisy variables floating around inside them that the cyclical biases of the zeitgeist will usually find their way into the headlines and the pundit reactions.  The last two months have been great examples of that.  If we keep getting disappointed like this, we'll be seeing full employment and rising interest rates by the end of the year.  This is a setup for a profitable contrarian position that gains from a strong labor market.

This labor report gave us everything we should want, and the unemployment rate even overcame last month's excessively low short-duration unemployment noise to tick down another tenth.  This month saw a tick up in labor force participation and a large drop in "part-time for economic reasons", which has been slow in coming.  There isn't much to be disappointed about in the household data.  Yet, forward interest rates ticked up down on the release.

Here's an update on unemployment, by duration:

As I'd expected, the 0-4 duration unemployment from December wasn't sustainable.  But, the numbers, in general, remained pretty low.  We are starting to see an acceleration in the declining long duration unemployment levels.  I had expected this also, and it is probably somewhat related to the end of emergency unemployment insurance.

Here is a chart I have referenced before.  This is a measure of how many workers who have been unemployed for more than 14 weeks exit unemployed status over the following 3 months.  A healthy economy would see a level over 40%.  This measure is up by 5% over the last two months, to 37.4%.  If it hits 40% by March and 45% by June, we are probably looking at a 6% unemployment rate by June and a 5.5% rate by December.  The recent post-EUI employment changes in North Carolina suggest that these projections are not out of line.

There is this notion that transfers such as EUI create "multipliers".  To me, it seems much more clear that there are multipliers from increasing employment.  So, as former EUI recipients become re-employed, there will be complementary effects with the new production that do actually create a "multiplier".  I would not be surprised to see a rebound in employment that exceeds the number of former EUI recipients.  I think the over-under is that we shed another million from the "over 26 weeks" category by June.  That is just as likely to be conservative as it is to be an overestimate.

PS. Average wages also look like they are continuing to accelerate.