Investors are eagerly awaiting the October update on the Jobs Market to be released this Friday. But don’t expect blockbuster results.
As we’ve discussed before, the monthly jobs added number on tomorrow’s non-farm payroll report is very volatile and subject to massive revisions in the months following. The confidence interval on the initial release is plus or minus 115,000. This means if the number reported is 200,000 new jobs the subsequent revisions could swing wildly between 85,000 or 315,000.
So tune that out.
What actually matters is the year-over-year rate of change in jobs growth. This measure is much more predictive. By that measure, jobs growth peaked at 2.3% in February and has declined to 1.7% in the September report. Note: Once jobs growth peaks, it converges to zero 100% of the time as we head into economic recession. That's why jobs growth is called a #LateCycle indicator.
Where do we go from here?
More jobs growth declines, says Hedgeye U.S. Macro analyst Christian Drake in today’s Early Look. As you can see in the Chart of the Day below, jobs growth faces some tough “comps” in the fourth quarter. Basically, that means when you’re measuring year-over-year changes, you have to “compare” against last year’s number. A tough comp will make the year-over-year change worse.
On that score, here are the relevant numbers:
- NFP: 4Q15 = 282K vs 3Q15 = 192K
- Hourly Earnings Growth: 4Q15 = 2.53% vs. 3Q15 = 2.3%
- Aggregate Income Growth (private): 4Q15 = 5.55% vs. 3Q15 = 5.4%
With growth in jobs, hourly earnings, and aggregate income all slowing, this obviously isn't a good setup for future consumption growth, Drake points says. “Wage growth needs to accelerate at the same rate payroll growth decelerates just to keep aggregate income growth flat (and, by extension and all else equal, consumption growth flat as well),” he writes.
So while Old Wall and its media fret over tomorrow's headline jobs market number, we'll continue to measure and map the slowdown in the rate of change. That's what actually matters.
