Jobs Report: Revisions Have Turned Negative
According to the BLS, the economy added 372k jobs in June. This exceeded the 250k market expectations and seems to indicate the labor market is more resilient than the rest of the economy which the Atlanta Fed currently forecasts as being already in recession. While resiliency is a positive sign for the economy, a strong job market will make it harder for the Fed to bring down inflation.
And there are some signs of weakness when you dig into the data – particularly the revisions.
Perhaps more importantly, the past three months saw a collective revision down of 100k jobs. A previous job analysis highlighted this exact possibility. Based on the initial job announcements, it seemed probable that future job revisions would turn negative unless strength in the job market stayed elevated. This could be early signs that the job market is slowing quite a bit.
Figure: 1 Change by sector
Back to the data, the unemployment rate stayed flat at 3.6% for the fourth month. The Labor Force Participation rate dropped back to 62.2%. YoY, this June is lower than last June by 185k jobs.
Looking at the raw numbers below, the MoM numbers improved by 150k but YoY this June is 250k below last June.
Figure: 2 Monthly Non-Seasonally Adjusted
Comparing the adjusted data to non-adjusted shows that this June saw an adjustment in line with past years. While most of 2022 has seen smaller adjustments on average, June was more middle of the pack. The gross job number was adjusted down by 60%.
Figure: 3 YoY Adjusted vs Non-Adjusted
Breaking Down the Adjusted Numbers
Looking at the raw numbers is interesting and shows how much the BLS models modify the final output. That being said, the market at large and this analysis will focus primarily on the officially published numbers.
The chart below compares the current month with the 12-month average. Despite a job report that beat expectations, there is no doubt the market is cooling. Seven of eight categories are below the 12-month trend. Only Education and Health was above. This is in direct contrast to the inflation data, which shows nearly all categories above the 12-month trend.
Figure: 4 Current vs TTM
The table below shows a detailed breakdown of the numbers. The 3-month trend has been fairly stable with 375k vs 372k. The 12-month average is 523k. It is clear that the job market is slowing as the Covid recovery wears off and recession sets in.
Of particular interest is that the job market has averaged only 31k jobs per month over 3 years. This is a very low average and shows how much Covid impacted the job market. A healthy job market will average 200k jobs a month, or almost 7x more!
- Leisure and Hospitality is half the 12-month average
- Government sector shed jobs at the Federal level
- Finance sector only added 1k jobs vs a 3-month average of 15.3k
Figure: 5 Labor Market Detail
Revisions have turned negative after massive positive revisions over the last year. From Mar-May, jobs have been revised down by an average of 33k per month. In the analysis three months ago, this figure stood at +166k per month. The 12-month average revision is +76k. This is a major turn of events.
The negative revisions are fairly widespread across Construction, Education/Health, Finance, Professional Business, Trade/Transport/Utilities, and Government.
Figure: 6 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 the rebound has been quite strong. The job market had 152.5M people pre-Covid and now sits at 152M. The job market is still 500k people short. This does not include the jobs that would have been created if not for Covid.
Figure: 7 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 (62.2%) is still below pre-pandemic levels (63.4%) and much lower than the 66% pre-financial crisis.
Figure: 8 Labor Market Distribution
What it means for Gold and Silver
The job market does appear to be slowing, but the number today did surprise to the upside for the second month in a row. The downward revisions are something to watch going forward. It is not surprising that many months have been revised down given the smaller adjustments that have occurred this year.
After a brief sell-off in reaction to beating expectations, gold and silver have rebounded some. This is surprising given that Powell has used the strong labor market as justification for tighter policy despite many signs of recession. The metals may be getting a bounce from being oversold. Regardless of the Fed’s current aggressive trajectory, they are still miles behind the inflation curve. Next week will bring the June inflation report which could see a YoY reduction.
The very short-term outlook for gold and silver both look mixed as relatively strong support of $1800 and $20 both fell this week. That being said, it won’t be long until the market figures out the Fed cannot really bring down inflation but will most certainly pop the everything bubble. When the Fed inevitably returns to easing, long before inflation is back near 2%, gold and silver are likely to takeoff and leave both $1800 and $20 far behind.
Data Source: https://fred.stlouisfed.org/series/PAYEMS and also series CIVPART
Data Updated: Monthly on first Friday of the month
Last Updated: Jun 2022