US Employment Report: A Major Disappointment

There were some positives in the report as the prior two months of job gains were revised up a total of +134k, and the unemployment rate dropped from 5.4% to 5.2% as expected. Again, the unemployment rate can’t be taken at face value without looking at the labor force participation rate as well (the percentage of the population either working or actively looking for a job). That was unchanged at 61.7% vs. 63.4% just before the pandemic.

More importantly, outside of the pandemic months, that 61.7% is the lowest in over 43 years. It also means that 3 million fewer people are participating in the labor force than before the pandemic, while at the same time there are 5 million fewer jobs. In other words, there are more jobs to recover with fewer people interested in filling them.

Average hourly earnings (wages) rose +0.6% m/m putting the y/y rate at 4.3%. Outside of the pandemic months, that is the highest in 14 years of records. This faster wage growth is another sign of high demand and low supply of labor, and it’s a significant driver of overall inflation which shows up in other reports below.

Indeed, there are several other signs of high demand and low supply of labor and rising prices.

The National Federation of Independent Business (NFIB) survey points to higher wages. The net percentage of respondents who plan to raise wages, and those who already have raised wages, both set record highs last month.