Macro Deep Dive Report

**Labor Market Deep Dive**


The labor market has been cooling moderately over the last 9 months, a welcome sign after the Spring 2023 when data was flashing red. Since economic growth remains stable, it could take longer than the market expects before the Federal Reserve is confident that elevated inflation is no longer a threat, and they start to cut. While signs of strain show and risks remain, the surprising overall resilience of the labor market suggests that restrictive interest rates will remain a headwind for the industrial sector.


Initial and Continuing Jobless Claims are great weekly economic datapoints however, since they are highly volatile, we use 4 week moving averages to determine the underlying trend. Here we see initial claims (208k) are moving lower since June while continuing claims (1.862M) have plateaued since November.

Another way to view this data is as a recession indicator which has held since the 1970’s. The signal flashes when the 3-month moving average are 20% above their 12-month minimum. This was triggered in March of last year, however, both have moved well below the threshold and economic growth remains

The Unemployment Rate held at 3.7% for December, slightly below the market consensus of 3.8%. What to watch going forward is whether the “Sahm rule” will be triggered, another historically accurate indicator that the market is in the early stages of a recession. This would occur if the 3-month average of unemployment pushed above 3.9% before April. This is currently at 3.73% and has been falling for 3 months.

The December data for Challenger Job Cuts showed that US employers slowed layoffs, with 34,817 announced job cuts, which was the lowest number in five months and the second lowest monthly total for the year. However, looking at 2023 altogether, companies planned a total of 721,677 job cuts, marking a significant 98% increase from the 363,824 cuts announced in the prior year. This figure represents the highest annual total since 2020 and excluding 2020, it is the most since 2009.

JOLTS Job Openings November’s data showed a decrease of 62k, dropping to 8790k. This decline marked the lowest level of job openings since March 2021, and represents the third consecutive month of declines in job openings. With that said, openings at their current level are still more than 2M above the 3-year average from before the pandemic.

In 2023, Non-Farm Payrolls experienced a total job gain of 2.7m, which is the smallest annual increase since 2019 (excluding 2020). The pace of growth has clearly slowed over the last 3 years, with the January-December trendlines represented on the right.