US: A labour market health check
Wed, Sep 19 2007, 13:24 GMT
by Allan von Mehren, Carsten Valgreen
- The August payrolls data has cast doubt over the resilience of the US labour market and motivated fears of a more serious downturn in economic activity. Not only did the labour market experience a net loss of jobs in August, the labour market report also included a negative revision to previous months, implying a considerably weaker trend in hiring than previously.
- There is no doubt that the trend in payrolls has softened over recent years in response to softer eco-nomic growth. That said, the pronounced weakness in the job market during the summer months seems more subtle.
- Firstly there are limited signs of a negative overhang from excessive job creation in recent quarters. The labour market quite closely followed the path laid out by GDP data. Secondly, while the signals from other labour market data remain very mixed, these indicators are on average not able to account for such a noticeable weakening. Finally, the slowdown in payrolls has been amplified by a sudden re-trenchment in government hiring and a conspicuous drop in manufacturing payrolls in August. Nei-ther of these developments should be sustainable.
- In summary, we find the recent slowing in employment growth somewhat excessive. Most likely the labour market will manage to recover in the coming months. The recent growth pattern as well as the common message from other labour market indicators suggest an underlying trend in hiring close to 100K per month.
- If the job market does not recover, the economy will be facing a quite different scenario. In this case a more serious slowdown could be on the cards. Such a scenario could easily involve more Fed easing than we are currently anticipating.
