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Always lagged but also always relevant, we got the March JOLTS data last week. Openings declined to 8.49mil, below forecasts for a 8.88mil figure and the lowest since February 2021! Hires declined to 5.50mil, lowest since April 2020! Quits also declined to 3.33mil, lowest since January 2021 – likely indicating a decline in worker confidence in their ability to find another job. Not to be left out, Layoffs fell to 1.53mil, lowest since December 2022.

The April jobs report released today showed a Goldilocks scenario for the labor market – not too hot, not too cold. Nonfarm payrolls increased by 175,000, below the expected 243,000 and the smallest gain since October. While this may seem concerning at first glance, it's important to remember that job growth has been incredibly strong in recent months, averaging around 250,000 per month. In this context, the slowdown in April is more of a normalization than a cause for alarm.   The unemployment rate ticked up slightly to 3.9%, but this comes after an impressive 27 straight months of the rate remaining below 4%, the longest streak since 1970. Moreover, the prime-age employment rate continues to rise and remains above pre-COVID levels, a resilience not typically seen before previous recessions.   Wage growth, a key focus for the Fed, is showing continued signs of cooling. Average hourly earnings rose just 0.20% month-over-month and 3.92% year-over-year, the slowest pace since May 2021. This is a welcome development after the hotter-than-expected Q1 Employment Cost Index (ECI) released earlier this week, which had raised concerns about persistent wage pressures. The AHE reading reinforces the broader trend of slowing wage growth, which should continue over the next few quarters as inflation expectations remain low and productivity continues to improve.   Digging into the details, part of the softness in payrolls came from a drop-off in government hiring, which added only 8,000 jobs in April after being a strong source of employment in the past year. Private sector job growth remained strong at 167,000. On an industry level, Education & Health Services (+95,000) and Transportation & Warehousing (+22,000) led the gains, while Leisure & Hospitality, a strong contributor in recent months, added a mere 5,000 jobs.   Overall, the April jobs report paints a picture of a labor market that is gradually loosening, but still undeniably robust. For the Fed, this is likely a welcome development, as it suggests that a) the heat in the labor market to start the year was likely not a reacceleration and b) their policy tightening is having the desired effect without tipping the economy into a recession. The softer readings across the board, while not dramatic enough to prompt immediate rate cuts, keep hopes of a potential rate cut in late summer alive – but the Fed will likely need to see continued moderation in the labor market and inflationary pressures before considering any policy easing.    #economics #jobs #jobsreport #labormarket #markets #equities #bonds

Main Management, LLC's CEO/CIO Kim Arthur and Managing Partner Darol Ryan will be attending Envestnet's Elevate Conference - Reach out to schedule time to connect! #ENVElevate

The US Productivity Report for Q1 2024 showed a slowdown in nonfarm labor productivity growth to 0.3% quarter-over-quarter (seasonally adjusted annual rate), falling short of expectations for a 0.8% reading and marking the slowest growth in four quarters. This weaker reading was somewhat expected given the reversion from very strong productivity readings in the past few quarters. Despite the slowdown, year-over-year productivity rose to 2.9%, the fastest pace since Q1 2021, suggesting continued growth in the underlying trend.   Unit labor costs, which measure the cost of labor per unit of output, surged 4.7% quarter-over-quarter (seasonally adjusted annual rate) but eased to 1.8% year-over-year, indicating that real compensation growth has trailed productivity growth. While this series is noisy, the Employment Cost Index (see Tuesday's post) and average hourly earnings (out tomorrow) provide a stronger signal of cooling but still elevated wage growth.   Productivity growth has improved over the past 4-6 quarters, driven by factors such as healing supply chains and a fully employed workforce with a low job turnover rate, allowing workers to become more skilled and efficient over time. We believe productivity growth should continue to trend upward, playing a crucial role in the battle against inflation by allowing for higher real wages without putting additional pressure on prices.   We would be remiss not to mention the FOMC yesterday, which thankfully was largely a non-event. The biggest takeaway was Powell's potential paths for the economy and policy: 1) persistent inflation, in which case rate cuts would be put on hold; 2) regaining confidence that inflation is coming down, leading to rate cuts; and 3) unexpected weakening in the labor market, also prompting rate cuts. On inflation, Powell maintained a dovish tone, downplaying the recent upticks in data and highlighting the consistent progress in wage growth. He expressed confidence that a decline in housing costs and continued supply-side healing would contribute to further disinflation, which we agree with. On the labor market, he pointed to the declining trend in job openings, gross hiring, and quits as signs that labor demand is cooling off, and noted that it would take more than a couple of tenths of a percentage point increase in the unemployment rate to constitute "unexpected weakness." We'll get the Jobs report for April tomorrow, which should give some further insight as well.   #economics #employment #markets #equities #economy #bonds

As we mentioned yesterday, other indicators suggest continued labor market cooling (and therefore wage pressure easing). The quits rate, reported in today's JOLTS report and indicates the confidence for workers to find a new job, fell to 2.1%, the lowest since May 2021 and consistent with the levels seen during 2017-2018. This normalization in the quits rate is a positive sign that the labor market is gradually returning to pre-pandemic dynamics. With fewer workers voluntarily leaving their jobs, businesses may face less pressure to raise wages to attract and retain talent. In fact, the current quits rate is consistent with an ECI year-over-year growth of around 3% over the next few quarters, a significant moderation from the 4.2% seen in Q1 2024.

The Employment Cost Index (ECI) for Q1 2024, which tracks changes in the costs of labor for businesses, including wages, salaries, and benefits, came in hotter than expected. The index rose 1.2% quarter-over-quarter, the largest increase since Q3 2022 and above the forecast of 0.9%. On a year-over-year basis, the ECI remained unchanged at 4.2% in Q1 2024, still significantly higher than the pre-pandemic norms. This data suggests that wage pressures, while moderating from the heights seen in 2021-2022, have not yet fully subsided.   However, the details suggest a little less heat than the headline suggests – particularly in the divergence between unionized and non-unionized workers. Union workers (which as a reminder, represent only 6% of the workforce) saw a robust 1.6% increase in compensation, while non-union workers experienced a more modest 1.0% gain. The positive is that union pay growth is typically a lagging indicator, as union contracts adjust less frequently and therefore take longer to reflect past inflation spikes.    While the Q1 2024 ECI data may not drastically alter the Federal Reserve's near-term policy outlook, it serves as a reminder that wage pressures remain and should be monitored going forward. However, it's important to note that other labor market indicators, such as the JOLTS figures (specifically the quits rate), have signaled for cooling labor costs and suggest that wage growth should continue to slow.   #economics #markets #inflation #employment #wagegrowth #equities #bonds

Start the week off right with this incredible commentary from Advanced Asset Management Advisors featuring our CEO/CIO Kim Arthur!