More Thoughts on Employment

Sep 10, 2021 | Nick Scholte


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Weekly jobless claims are at a pandemic era low, and there are a record 10.9 million U.S. job openings.. With this as the backdrop, why did last week's Employment Report miss expectations so badly? A likely contributing factor expired this week.

To my clients:

It was a down week for North American stock markets with the Canadian TSX finishing down 0.9%; the U.S. Dow Jones Index down 2.1%; and the S&P 500 down 1.6%.

Economically speaking, jobless claims data was the highlight of the week. Initial filings reported yesterday yielded a result that was much lower than expected. Weekly claims of 310,000, the lowest in the past 18 months, were well below expectations of 340,000. This helped push the four-week average to new lows and broadly underscores the healing that has occurred in the aftermath of the COVID-19 extremes. Weekly claims are now close to breaking below the 300k threshold which has, during my career, been broadly indicative of a healthy labour market. I also reiterate that the trend in weekly claims is perhaps RBC’s favourite leading indicator of recession, and the trend is unquestionably favourable.

Remaining on the topic of employment, I’d like to add a couple more thoughts on last week’s disappointing U.S. Employment Report. Recall that a “mere” 235,000 new jobs were reported in the month of August vs expectations for 750,000. While 235,000 would be considered a solid report in “normal” times, expectations were for a result more than three times higher as the labour market continues to recover from pandemic dislocations of the past year and a half. In light of the continually improving jobless claims data highlighted in the paragraph above, and within the context of a record 10.9 million job openings available in the U.S., how/why would the number of new jobs created so badly miss expectations? One possible explanation for this disconnect might well be the impact of federal unemployment benefits. These pandemic relief measures - which expired earlier this week - included extending benefits to roughly seven million individuals not covered under state programs and $300/week supplemental payments to an additional three million recipients of traditional unemployment. Critics contend the federal benefits created disincentives to work, leading to upward wage pressure and extended job vacancies. As these payments expire, there is some hope that vacancies will be filled at a faster rate in the coming months. I suspect this indeed will be the case.

That’s it for this week - short and sweet. All the best,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
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