US: Mixed employment indicators

Labour market data has revealed mixed signals since our last update. The ratio of unfilled vacancies per unemployed fell to 1.24 in April, as JOLTs job openings continued the declining trend to 8.06m. This marks the first time since mid-2021 that the ratio aligns with pre-pandemic averages.

In contrast, the May Jobs Report surprised markedly to the upside. Nonfarm payrolls (NFP) stood at 272k, while the total labour force surprisingly shrank by 250k. Coupled with hotter-than-expected average hourly earnings at 0.4% m/m SA (4.1% y/y), the data would point towards re-tightening labour markets in May. In addition, latest JOLTs data showed hiring picking up speed while layoffs remained low, suggesting that firms are not feeling pressured to cut labour costs. Initial jobless claims have edged higher in early June, but remain at low levels in historical context.

That said, while the overall participation rate moved lower, the prime-age labour force (25-54y) still increased. Furthermore, immigration continued to provide a positive boost to the labour supply. Overall, we still think that labour market conditions are getting gradually looser.

The unemployment rate climbed higher to 4.0% as household employment fell by 408k. Unlike the NFP, which tracks the number of jobs, the household measure, based on a smaller sample size, follows the number of workers. Notably, the two indicators have diverged markedly over the past 6M - even after accounting for obvious differences.

The NFP's annual benchmark revisions every March are based on the Quarterly Census of Employment and Wages (QCEW). This data uses a comprehensive record of firms' unemployment insurance filings, providing a more accurate but less timely employment measure. The latest Q4 23 QCEW data showed job growth halting, suggesting that recent strong NFP prints could be revised down. However, QCEW may miss a key driver of the past year's employment growth, namely immigration, as undocumented immigrants might not be eligible for unemployment insurance. Hence, the QCEW data could be undercounting the true employment boost from immigration.

The ISM employment indices ticked higher in May, with the manufacturing leg entering expansionary territory at 51.1 (prior: 48.6), while services remained in contraction. Hence, the picture was somewhat mixed. Similarly, the May edition of NFIB's small business survey provided ambiguous signals. While hiring plans and business confidence reached their highest levels this year, the looming US presidential election fuelled a rise in uncertainty perception to its highest level since November 2020.

Overall, recent data has presented mixed signals regarding the state of the labour markets, with notable divergence among NFP, and QCEW and household employment. This highlights the importance of considering multiple indicators in order to gain a comprehensive understanding of temperature of labour markets. Despite the upside surprise in NFP, rising unemployment and declining job vacancies point towards cooling overall conditions, in our view.

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