The Economy: Damaged Labor Markets; An Inflation Head Fake

The Economy: Damaged Labor Markets; An Inflation Head Fake

On Friday, February 5, markets were set to rise no matter what the employment data showed. If they beat to the upside, that would validate the reflation/pent-up demand narrative. If they disappointed, well, that would simply mean more fiscal and monetary largesse (which financial markets love). Either way, heads markets rise; tails, ditto.

Labor Market Signals: Positive, Negative and Mixed

As it turns out, there was validation for every viewpoint in the latest Bureau of Labor Statistics Employment Report:

·     Negative: The Establishment (Payroll) Survey grew just +49K disappointing the consensus view of +105K. Worse, December was revised down by -87K and November by -72K.

·     Negative:

·     Positive: State and Local Government: +67K (But this means that payrolls in the rest of the economy were -18K!)

·     Mixed: The Unemployment Rate (U3) fell to 6.3% (good), a decline that was mainly due to a -406K fall in the labor force, i.e., people dropping out having given up (bad).

·     Mixed: The workweek rose to 35 hours (+0.9%). Hours worked in Leisure/Hospitality rose +2.4% and +1.3% in Retail, even as there were significant pink slips in these sectors. This tells us that businesses chose to meet demand by working the existing staff OT instead of hiring, just in case the rise in demand proved to be temporary.

·     Negative: The