Employment Indicators – Follow the Money

The line graph above, from the Bureau of Labor Statistics (BLS), shows U.S. job vacancies over the past ten years. In the past year or so, the number of available jobs in the U.S. has returned to levels consistently higher than prerecession levels.

This statistic seems to be a more accurate indicator of the health of the economy than the more widely reported unemployment rates by the BLS. The Official Unemployment rate reported by the BLS peaked at 10% in late 2009 and steadily fell until we reached what was supposed to be the ‘full employment’ range of below 5.0% in January 2016. Having reached ‘full employment’, further economic growth was supposed to have only been possible if accompanied by wage inflation.

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However, in the past few months, we have experienced an increase in hiring, an increase in job availability, and little change in the unemployment rate. Wages have increased this year only 2.5%, a number that is considered benignly neutral with respect to inflation.

Since roughly the Great Recession of 2008 the official unemployment rate, denominated “U-3” by the BLS, is regarded with some skepticism because it seems to have become defined in an increasingly narrow Panglossian manner, belied by the reality most people faced in the job market. Because of this, the more inclusive ‘labor participation rate,’ formerly a statistic only of interest to economic professionals, is today often mentioned even on general television news programs when discussing the monthly employment report of the BLS. A chart of the labor force participation rate is shown below.

The recent numbers coming out of the job market shows that some of the skepticism with BLS’s unemployment reporting methodologies is well-founded. In fact, the current trend of increasing job numbers unaccompanied by a fall in the unemployment rate is routinely explained by ‘people returning to the job market.’ Apparently, these people were neither employed nor unemployed, just ‘not participating.’ Go figure.

Given the official calculations inaccuracy with the supply of available workers (i.e. unemployment), the demand side of the labor equation, measured by the number of available jobs and wages, seems to be a more accurate indicator of the true temperature of the economy.

Based on the growing number of jobs unaccompanied by wage growth, it seems that the current economic expansion has quite a ways to go yet. Hopefully, it will end in the traditional way many months down the road by the Fed being forced to step up to cool wage inflation.

About Chris Donnelly

Christopher J. Donnelly, is an experienced attorney, bond analyst and fixed income strategist, with years of experience in structured finance, distressed bonds and bond related litigation in a variety of industries and the emerging markets. He is a graduate of Rutgers University (BA), The University of Pennsylvania (JD) and New York University, (LLM in Taxation). Chris is a Managing Director of Straacom, LLC and can be contacted at cdonnelly@straacom.com. Straacom provides strategic research, analysis and communications for publication and on assignment for private clients.

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