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Non-Farm Payrolls Mislead

The Labor Market is Weakening; Inflation is Falling

The big economic news of the week was the +272K rise in Non-Farm Payrolls (NFP)(released on Friday, June 7). Expectations were for a number in the +180K range, so, a pretty big beat. Another data point upsetting markets (and likely the Fed) was the hottish average hourly earnings number (+0.4% growth in May, above the +0.3% consensus estimate, and to 4.1% on a year over year basis, up from 4.0% in April). Because the Fed appears to be driven by media hyped headline numbers and apparently pays little heed to leading indicators, expectations for rate cuts this fall took a hit. Markets are now pricing in just one rate cut in 2024. After the NFP report, based on lower rate cut expectations, interest rates spiked with the 10-Year Treasury’s yield up more than 15 basis points (+.0015 percentage points) on the day (see right side of chart).

As noted in the rest of this blog, most other labor market data point to significant labor market softening. Quote of the Day:

We are seeing notable uptrends in layoff announcements across construction, consumer products, energy, real estate, transportation services, and leisure/entertainment (9,180 layoffs in May 2024 versus 3,905 a year ago – outside of the 2020 health crisis, this was the highest for any May on record going back to 1995). Well over half the reasons for layoffs came from accelerating recession pressures – bankruptcy, cost-cutting, demand downturn, economic conditions, falling sales, and foreclosure. Once again, the third highest for any May in the series of the Challenger, Gray and Christmas database.  David Rosenberg, Breakfast With Dave, June 7, 2024.

  • The Household Survey (HS), the companion to the NFP report showed a loss of -408K jobs and a labor force that shrank by -250K. This isn’t a sign of a healthy labor market. Just the opposite. Note that, while the media pay little attention to the HS (except for the unemployment rate which is calculated from the data therein), historically, it paints a much more accurate picture of the health of the labor market, especially at economic turning points. Of significance, the HS reported that full-time jobs fell another -625K in May and over the past year, that number rises to -1.2 million. Apparently, it has become increasingly difficult for job seekers to find full-time employment. As a result, part-time employment (which BLS counts as equal to full-time!!) shot up by +286K, and those holding multiple jobs rose another +16K to 8.4 million.
  • As pointed out by Rosenberg, the hot wage number doesn’t jive with the rapid reduction in the JOLTS (Job Openings and Labor Turnover Survey) voluntary quit rate, which, at 10.8% in May (was 12.7% in March) was the lowest print since September 2021 – that’s 32 months ago. Lower voluntary quit rates are highly correlated with lower, not higher, wage growth.
  • That same JOLTS showed a significant decline in job openings to 8.059 million in April from March’s 8.355 million (revised down from 8.488 million). April’s job openings were the lowest since February ’21.
  • ADP’s report on the number of jobs created in May came in at +152K, well below the consensus estimate of +175K. (ADP’s April new jobs were also revised slightly lower to +188K from the initial +192K reading). Small business (fewer than 50 employees) employment fell -10K in ADP’s survey. We mention this because small businesses tend to lead in the employment cycle.
  • In 2024, through May, full-time jobs have been disappearing (-1.2 million) replaced by part-time; yet another sign of a rapidly cooling labor market.
  • In recognition of an economy potentially at a turning point, the Regional Federal Reserve Banks’ GDP forecasting models have shown volatility in their forecasts.
  • The Atlanta Fed, always the outlier on the high-side, was forecasting a GDP growth rate of +4.2% (Annual Rate) in mid-May. That forecast fell back to 1.8% in early June. On Friday, after the NFP report, that number was lifted to +3.1%.
    • The St. Louis Fed’s GDP forecast for Q2 currently sits at +1.2%.
    • The NY Fed’s model shows a Q2 GDP growth forecast of +1.9%.

Considering that the Atlanta Fed was at +4.2% in mid-May falling to +1.8% in early June and is now at +3.1% shows the volatility in the data with some data releases showing strength (e.g. NFP) while others show weakness (e.g. full-time jobs). History shows that such divergences in the data occur around economic turning points.

The Fed

Since the spring, this Fed has maintained its hawkish “higher for longer” rhetoric. They appear to be fixated on lagging indicators, and the NFP report along with the hotter than expected wage growth number has surely reinforced that attitude. The Fed is normally a leader in setting interest rates on a worldwide basis. In the normal course of events the Fed is first to raise or lower rates, quickly followed by the world’s other central banks. Not so this time. Over two months ago (April 2), the Swiss central bank cut its rate; then on May 8, Sweden’s central bank lowered. This past Wednesday (June 5) the Bank of Canada lowered followed by the European Central Bank (ECB) on Thursday (June 6). All the central bankers expressed the view that, while still higher than target, inflation continues to fall and will likely continue to do so. Hence, it is time to lessen monetary tightness. (Note: Despite such rate cuts, policies at these central banks continue to be restrictive.)


Used Vehicles – this particular index has been the poster child for the current bout of inflation. The chart shows the rise in the prices of used vehicles during the pandemic when supply chains were disrupted. Note that of late (right-hand side of the chart) we are seeing actual deflation (lower prices) in the used vehicle markets.

In fact, as shown in the chart below, inflation is trending down at a rapid pace. This, clearly, is what those central banks that recently lowered rates have concluded. From our point of view, staying too restrictive for too long is likely to end up being a significant policy error.

CRE Foreclosures – A Huge Problem

We don’t make that statement lightly, but, as we have been reporting for some time in this blog, the Commercial Real Estate (CRE) problem continues to grow and will have financial consequences before the year has ended. Since our last blog, there have been four significant CRE foreclosures (that’s one approximately every two business days!).

The left photo is a picture of 1200 K St. NW, Washington D.C. Debt owed was $142 million, the winning bid was $44 million. The right photo is in Manhattan (222 Broadway). Debt on the building was $500 million; sale price was $150 million.

The left photo is the Willis (Sears) Tower in Chicago; Its future is called “uncertain” because of high debt-service costs. The right photo shows two luxury hotels in Miami’s South Beach area headed to foreclosure.

Final Thoughts

  • The strength in the Non-Farm Payroll number (+272K) is an anomaly. Nearly every other employment survey shows a weakening picture. The Household Survey, which has a strong track record at economic turning points, was very weak (-408K jobs). In addition, full-time jobs are down -1.2 million from year ago levels. Despite a -250K shrinkage in  the labor force, the unemployment rate (U3) moved up from 3.9% to 4.0%. Just a note: 4.0% is where the Fed has pegged U3 at year’s end. Given the weakness now occurring in the labor market, we think the year end U3 will be significantly higher than 4.0%.
  • Interest rates spiked on Friday only because the strong Non-Farm Payroll numbers lowered the odds of rate cuts this year. We note, however, that it is still a long time from here to year’s end!
  • The Fed, normally the leader in setting interest rates worldwide, has now become a laggard. Leaders of four other central banks have recognized that their economies are weakening, and, while inflation isn’t yet at target, it is likely to continue to fall. Hence, these central bankers (including the European Central Bank and the Bank of Canada) have lowered rates a notch to a slightly less restrictive position. The Fed should take note.
  • The data on inflation continue to show it moving lower. As noted, other central banks have recognized that moving rates to less restrictive levels won’t impact the current disinflation regime.
  • Commercial Real Estate (CRE) values continue to fall. Major foreclosures continue and are making financial media headlines. Because many regional and community banks in the U.S. hold significant levels of CRE loans, this is likely to become a significant issue prior to year’s end and into 2025.

Robert Barone, Ph.D.

(Joshua Barone and Eugene Hoover contributed to this blog.)


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