Jobs Analysis: What if Leisure and Hospitality has Fully Recovered?
November was the weakest jobs report of the year, coming in at a paltry 210,000, missing consensus expectations of 573,000. There were modest revisions upwards over the last two months of 8,000 and 15,000 for September and October respectively. Nothing to be excited about.
Figure: 1 Change by sector
This next chart compares the current month with the trailing 12-month average. A few key takeaways:
- Construction, Professional Business, and Manufacturing were above trend
- Construction, in particular, was almost triple the TTM (31k vs 12k)
- The other 5 categories were all below trend
- Government saw another month of job losses
- Leisure Hospitality fell WAY below trend (23k vs 222k)
Figure: 2 Current vs TTM
Why was Leisure and Hospitality so low? Last month, the number was 164k. The new Omicron variant is not impacting these figures as that only just surfaced. What if the recovery is nearly complete for L&H? In Feb 2020, there were 16.9M People employed in the sector. As of this month, that sector has 15.6M, still short by more than 1.3M jobs.
The broader economy had 152.5M people employed as of Feb 2020 and now only has 148.6M. Leisure and Hospitality make up 33% of the total job losses still outstanding. If Leisure and Hospitality are reaching a new equilibrium of full employment then which other category can make up the difference? Even worse, if Omicron results in shutdowns then L&H could see more job losses in the months ahead.
What does this mean for the Fed if their baseline for the job market is Feb 2020? How can they ramp down tapering and raise interest rates if their employment mandate has not yet been met? Obviously, based on the inflation numbers, it’s clear the Fed’s dual mandate should be prompting tighter monetary policy. It is dragging its feet for obvious mathematical reasons. Can it use the weak jobs numbers to justify continued stimulus?
Getting back into the data, the table below gives a much more detailed breakdown of the numbers and the entire labor force. Some key takeaways:
- Every category outside the government sector was below the three-month average
- This includes Professional Services, Construction, and Manufacturing which were all above the TTM
- The current month was less than half the TTM Average (210k vs 483k)
- The three-month average in Leisure and Hospitality is 100k vs TTM of 162k. This supports the idea that this month was not a one-off and growth in Leisure Hospitality is slowing.
Figure: 3 Labor Market Detail
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:
- Leisure and Hospitality have been revised upwards by 111k over the previous 3 months. While this upward revision trend may continue, can it be enough to overcome the big slowdown seen recently?
- Professional Business has seen massive upward revisions of 137k
- In normal times 137k could represent the entire employment report
These revisions are quite large by any standard. In normal times, most job gains come in around 180k-220k which is nearly the size of the three-month average in revisions.
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. But the trend is still clearly upward.
The Covid recession can be seen as the greatest job market loss. The chart also shows how much work the labor market still requires to regain the employment level seen before Covid (top far right drawdown). As mentioned above, the job market had 152M people. That number currently sits at 148M. The job market is still 4M people short. At 200k a month, it would take almost two more years for the market to recover to pre-pandemic levels. Never mind the natural growth of employment typically seen in the economy.
In the latest period, the unemployment rate fell sharply from 4.6% to 4.2% (it was 3.5% pre-Covid). This occurred even as labor force participation increased from 61.6% to 61.8% (Figure 4).
Figure: 5 Historical Labor Market
The distribution of the workforce has changed significantly over the last 65+ years. For example, in 1955, manufacturing accounted for 30% of jobs vs 8.4% today. Education/Health Care has tripled from 5% to 16%.
Although the unemployment rate has been sharply falling over the last year (chart above), the labor force participation (61.8%) is still well below pre-pandemic levels (63.4%) and much lower than the 66% pre-financial crisis. The current trend has flatlined.
Figure: 6 Labor Market Distribution
What it means for Gold and Silver
Gold and silver have been hammered recently. In last month’s jobs analysis, gold showed a lot of strength in the face of a strong jobs number. It finally broke through $1800 and charged up to $1879 on hot inflation data. Unfortunately, weak-handed traders bailed when Powell was renominated. Still, a baffling move considering Powell has led the Fed to the greatest expansion of the money supply ever.
Today, gold is up but the move does not match the weakness in the report. Similar to last month where the sellers seemed exhausted, it could be possible the buyers are currently exhausted (for now). They will be back though. Currently, sentiment is still bearish, especially with a Fed that has become just a touch more hawkish in their rhetoric. This despite their actions not matching up to their words, as seen in a balance sheet that grew $126B in November.
Stepping away from the daily price moves shows a more concerning trend. As mentioned above, what if the job recovery is mostly over? The economy is still well short of full employment despite a rate nearing 4.0%. How hawkish can the Fed get into a weakening economy? How many rate hikes can the market handle before the bubble finally pops? Not many! The Fed hasn’t even stepped away, but they will be back aggressively printing if the job market shows further weakness. Gold and silver offer the protection needed against the irresponsibility on display at the Eccles Building.
Data Source: https://fred.stlouisfed.org/series/PAYEMS and also series CIVPART
Data Updated: Monthly on the first Friday of the month
Last Updated: Nov 2021