Government Jobs Account for Nearly a Quarter of July Gains
The BLS provides an employment picture of the US on the first Friday of every month. It estimates how many jobs were added or subtracted by sector. While some of the assumptions may be controversial (e.g. the birth/death model) and job numbers are prone to revisions, it remains the most widely anticipated statistic each month by the financial markets. Considering its popularity, the job numbers are heavily analyzed by many sources. This article uses visuals and historical data to provide greater insight and perspective.
The latest jobs number showed an increase of 943k jobs, This beat expectations by 100k. Unfortunately, 240k gains came from government employment — essentially non-productive jobs that weigh on the economy.
As shown below, 943k is above the recent trend and the largest monthly gain since August 2020. Leisure and Hospitality continue to show the biggest gains, which is not surprising considering the massive layoffs they saw early in the pandemic and that unemployment benefits have recently been removed in some states. The unemployment rate ticked down from 5.9% to 5.4%.
Figure: 1 Change by sector
This next chart compares the current month with the trailing 12-month average. A few key takeaways:
- Government hiring was well above average. 240k added vs -2k avg
- Leisure/Hospitality and Education/Health nearly doubled the TTM average
- Construction, Professional Business, and Trade/Transport/Utilities were all below TTM average
Figure: 2 TTM vs Current
The table below gives a much more detailed breakdown of the numbers and the entire labor force. Some key takeaways:
- Government job increases were dominated by local governments (+230k) vs 18k in Federal and -8k at the State level
- Leisure and Hospitality have seen the biggest 12-month rebound, averaging 196k a month. This has accelerated in recent months to 364k likely a result of expiring unemployment benefits as stated above.
- Even with these gains, it is still down 7.7% from where it was 3 years ago
- Mining and Logging are still down 14.6% but the recent recovery has doubled from 3.7k TTM vs 6k in the current period.
- Trade, Transportation, and Utilities is the largest sector (27k) but growth in jobs slowed in the recent period to 47k down from a TTM avg of 97k.
- In aggregate the job market is still 1.5% smaller than it was 3 years ago.
Figure: 3 Labor Market Detail
As mentioned, this data is subject to revisions as new data becomes available. While the headline release gets a ton of market attention, the revisions get far less. The table below shows the impact of the revisions over different time periods. Please note this is as of the prior month since the most recent month has not seen any revisions. Important items to note:
- The recent three-month period has been revised up by 48.7k a month.
- The biggest upward revisions were seen in Leisure/Hospitality and Trade/Transportation.
- Over the last year, revisions have been positive of nearly 40k a month or about 500k in aggregate.
Figure: 4 Revisions
The chart below shows data going back to 1955. As the labor force has grown in total aggregate numbers, the recessions along the way have caused dips in the general trend. The Covid recession can be seen as the greatest job market loss since 1955. The chart also shows how much work the labor market still requires to regain the employment level seen prior to Covid.
Figure: 5 Historical Labor Market
The distribution of the workforce has changed significantly over the last 65+ years. Although the unemployment rate has been sharply falling over the last year (chart above), the labor force participation (61.7%) is still well below 18 months ago (63.2%) and much lower than the 66% pre-financial crisis.
Figure: 6 Labor Market Distribution
What it means for Gold and Silver
The stock market is hyper-focused on the labor market because the Fed uses the data as one of its primary drivers for monetary policy. Although jobs data is seen as a lagging indicator, a strong labor market would more likely result in a tighter Fed. Weak job numbers allow the Fed to be more accommodating in monetary policy. This will result in more quantitative easing, growing the fed balance sheet. Additionally, fiscal support may be stronger in a weak labor market coupled with falling tax revenues. This could put more strain on the federal budget which will only increase the total debt outstanding.
While the market may anticipate tighter monetary policy and less fiscal support in a strong labor market, the Fed is painted into a corner and cannot scale back the monetary stimulus without devastating the economy. Thus, the job numbers may impact short-term movements in the price of gold and silver due to speculative flows, but the long-term positive fundamental outlook should not be impacted by strong job numbers, especially when dominated by Government job gains like the most recent report.
Data Source: https://fred.stlouisfed.org/series/PAYEMS and also series CIVPART
Data Updated: Monthly on first Friday of the month
Last Updated: Jul 2021