The BLS modeled that the economy added 339,000 jobs in May, much higher than consensus expectations. When the headline nonfarm payrolls number surprises strongly to the upside, it’s an uphill battle in the short run to fight the market momentum.
In this weekly update, we’ll look at all the same indicators and job baskets as we do after each monthly employment report to filter out the headline narratives and arrive at the true underlying business cycle trends.
The Coincident Employment Index is a basket of five labor market metrics, including nonfarm payrolls, the employment level, and aggregate weekly hours. This composite index is preferable to only analyzing the nonfarm payrolls number because it incorporates both surveys of employment from the BLS and uses the insured unemployment rate from the Department of Labor.
On a smoothed six-month annualized growth basis, the Coincident Employment Index declined in May to 0.7%, the weakest growth rate of this cycle.
So the main takeaway from the Coincident Employment basket is that the labor market is decelerating with a growth rate that is just on the cusp of turning negative, historically occurring only as the economy is in recession.
Despite this reality from a more reliable indicator of the labor market, the headline shock factor of +339,000 is a challenging narrative to dispute.
While the Coincident Employment Index has drifted to a 0.7% growth rate, the Leading Employment Index, a basket of six leading employment indicators, remains in contraction territory.
The Leading Employment Index has a more direct feedthrough to Cyclical Jobs such as construction and manufacturing.
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This is a sample of the EPB Market Update, Week 22.
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