We’re 1 day late with our usual look at the US Jobs Report because we took its spot in “Data” yesterday with a preview of US corporate earnings season; today we will play catch up. We started this process in earnest during the recession scare last year. Even though that narrative has gone into hibernation this winter, it pays to remain alert in case the bear awakens. As we noted in Markets, its time will come.
#1: The real “wow” in Friday’s report came in a less-used measure of American unemployment.
- The U-6 unemployment rate captures a broader swath of workers, those working part time but who want full time positions as well as those who drop in and out of the workforce.
- In December 2019 U-6 dropped to an all time low of 6.7% (back to 1994, when the Bureau of Labor Statistics first started collecting it).
- The prior low was in October 2000, at 6.8%.
Upshot: as the most comprehensive measure of US unemployment, U-6 hitting new lows shows a strong US labor market.
#2: African American unemployment ticked up, but only modestly.
- Academic research shows African Americans are disproportionately laid off early in an economic downturn.
- December 2019’s African American unemployment rate was 5.9%. That is up from the trailing 3-month average of 5.5%, but lower than either Q1 2019 (6.8%) or Q2 2019 (6.3%).
- Also worth noting: African American labor force participation is back to levels (63.1%) last seen in late 2008.
Upshot: this indicator bears watching in the New Year, but we’re still far from the 1 percentage point increase that augurs an impending recession and rising LFP is a promising sign.
#3: The Sahm Recession Indicator, a relatively new signal, looks very good just now.
- Named for a Fed researcher, this measure looks at the 3 month rolling average unemployment rate and compares it to the low over the prior 12 months. When the former is 0.5 points or greater than the latter, a recession is at hand.
- The 3-month rolling unemployment rate is currently 3.53%, inline with the 12-month low of 3.5% (September 2019).
Upshot: at 0.0, this indicator currently sees no recessionary pressures building.
#4: Workers who finished their formal education with a high school degree are seeing low – and stable – levels of unemployment.
- This is a sizable (36 million Americans) and still relatively untapped (59% labor force participation vs. 74% for college grads) pool of available workers that could keep job growth humming along in 2020.
- December 2019’s unemployment rate for this cohort was 3.7%, level with the prior 3-month average. It can go lower; in late 1999 it hit 3.2%.
- Participation rates are slowly climbing as well, at 58.5% last month versus 58.1% in December 2018 and 57.8% in December 2017.
Upshot: despite worries about the manufacturing sector, one area that has traditionally employed the high school-only educated cohort, joblessness remained low into the end of 2019.
Summary: based on these indicators, the near term outlook for the US labor market remains strong. The headline number may have been disappointing, but when you dig into the data the picture is upbeat.