The labor market, is it finally cooling off?
The US Labor Market
The strength of the US labor market throughout the past year has been a thorn in the side of Wall Street analysts everywhere. (Figure 1) To be truthful we also do not understand the overwhelming strength of the labor market either, but we do think it might finally be cooling off. What leads us to this conclusion?
A few things first, as shown in Figure 1 US layoffs & discharges saw a slight uptick during December 2022. (Figure 1) Secondly continued unemployment claims have been rising since September 2022 and staying around 1.65 million since the start of the year. (Figure 2) The third reason is a newer data point so it might not be as strong of an indicator however, we think it is important for a labor discussion. With the cost of labor going up in the US along with lower labor output, we do not see this as a positive for the strength of the labor market. (Figure 3)
A widely cited reason for the strength in the US labor market is that firms are afraid of being understaffed after the reopening during COVID. However with the looming recession and rate hikes priced in for the rest of the year. We believe that firms will start to cut jobs, especially with the labor output decreasing as shown in Figure 3.
These factors lead us to believe that the US labor market will soon enter a cooling off phase, with layoffs across most sectors. However this upcoming week has more labor data including ADP Employment Change on Wednesday. (Figure 4) Initial Jobless Claims on Thursday and Friday having the most labor data releasing as seen in Figure 4. With all of this data being released we are admittedly early in drawing this conclusion. However by the end of this week we will have a better idea if our conclusion is correct or not.
DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be extremely volatile, as such using good risk management is a must.