One more scene from the September jobs report: late cycle deceleration continues

October 12, 2017
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One more scene from the September jobs report: late cycle deceleration continues

The rate of year over year job growth is probably the single best mid-expansion indicator, in part because there is very little noise in the Establishment survey jobs data YoY. But, as the below graph shows, going back all the way to 1948, while it is noisier the Household survey YoY jobs data also traces out the same pattern with very few exceptions (notable the early 1950s and the mid 1960s):

Even a cursory glance at the graph shows that we are on the decelerating side of that indicator. Here’s a close-up of the last 10 years:

Although the Establishment and Household numbers moved in very different directions this month, viewed in context both show a significant downshift in 2017 from the last few years.

Yesterday I noted that if leisure and hospitality jobs had grown by their 12 month average of +27,000 in September vs. their actual -111,000, the September Establishment survey would have grown by a relatively weak 105,000 (yes I know it is more complicated than that, but it is a good K.I.S.S. estimate). Since in September 2016 jobs grew by +249,000, even with that hurricane adjusted estimate, YoY job growth would have decelerated to 1.3%.

In the past-WW2 era, typically late-cycle deceleration was accompanied by (and generally caused by) an increase in inflation and an increase in Fed interest rates to chase after it. The few times there were multiple YoY peaks in job growth (the 1960s, 1980s, and 1990s), the Fed engineered “soft landings” where it lowered rates after initial raises.

Per Tim Duy, who has a good record of Fed-watching, even in the absence of rising inflation, they seem bound and determined to raise rates again in December. A December rate hike shouldn’t be enough to push the economy into a later recession, but it should put further downward pressure on job growth in 2018.

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