The Recession Just Hit The Job Market

Summary

The video script discusses the conflicting signals from the establishment and household surveys regarding the state of the economy. The establishment survey, which tracks payroll numbers, has been inconsistent and unreliable due to significant downward revisions. In contrast, the household survey, which surveys employees, indicates a strong recession with signals such as a decline in employment, falling full-time jobs, an increase in the unemployment rate, and a rise in part-time jobs. The script suggests that despite the establishment survey's confusing data, the household survey's signals are more indicative of an impending recession.

Takeaways

• 📉 The establishment survey's payroll numbers are highly volatile and unreliable, with significant downward revisions in recent months.
• 🔄 The BLS's benchmark changes have led to confusion in interpreting the labor market's health, with December's numbers being particularly misleading.
• 📊 The household survey, which gauges employment from the employee's perspective, is sending strong recession signals, diverging from the establishment survey.
• 📈 The six-month average employment level from the household survey is negative, historically correlating with recession periods.
• 📉 A substantial and ongoing decline in full-time jobs, as indicated by the household survey, suggests a weakening labor market.
• 📈 The unemployment rate has increased by half a point over a 10-month period, which is a rare occurrence outside of recessionary periods.
• 📊 An increase in part-time jobs often accompanies a recession, as businesses cut back on hours rather than laying off workers.
• 🚨 The combination of negative signals from the household survey, including employment levels, full-time job losses, and unemployment rate changes, points to a likely recession.
• 💡 The narrative of the Fed engineering a soft landing, as seen in 1995 with Greenspan's rate cuts, may be applied to the current economic situation.
• 🔍 American workers' anticipation of a recession is supported by the latest data, reinforcing the idea that the economy is not landing softly.

Q & A

What are the two main surveys mentioned in the transcript for measuring employment?

The two main surveys mentioned are the Establishment Survey and the Household Survey.

What issue was highlighted with the Establishment Survey's payroll numbers?

The Establishment Survey's payroll numbers were described as a mess due to significant downward revisions and initial estimates that were highly volatile and unreliable.

How did the BLS's Benchmark changes affect the payroll reports for December and January?

The BLS's Benchmark changes resulted in initially positive revisions for December and January, which were later revised downward, altering the perception of job growth during those months.

There was a discrepancy where the Establishment Survey showed a huge increase in payrolls, but hours worked, as measured by the Household Survey, went down significantly, leading to a downward revision in payrolls.

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What does the six-month average employment change in the Household Survey indicate about the economy?

A negative six-month average employment change in the Household Survey is considered a strong recession signal, as it has historically aligned with recession periods or periods leading up to a recession.

Full-time jobs showed a significant decline, with a six-month average decrease of 220,000 jobs, which is another strong recession signal.

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What was the unemployment rate in February according to the Household Survey, and why is it considered a recession signal?

The unemployment rate in February was 3.9%. It is considered a recession signal because it has increased by half a point over a 10-month period, which is a rare occurrence outside of recessionary times.

What trend was observed in part-time jobs, and how does it relate to the recession signals?

Part-time jobs increased, which is often seen in recession periods as businesses cut back hours for workers instead of laying them off, leading to a shift from full-time to part-time employment.

What historical context was provided regarding the Fed's response to economic weakness?

The transcript mentioned the 1994-1995 period when the Fed, under Alan Greenspan, hiked rates and then cut them, which some believe helped avoid a recession. This is being compared to the current situation where the Fed might need to navigate a similar path.

What is the main narrative being suggested for the economy moving forward?

The main narrative is that the economy is moving into a recession, and the Fed, following the example of Greenspan in 1995, is expected to implement rate cuts to engineer a soft landing.

Outlines

00:00

📉 Unreliable Establishment Survey and Recession Signals

The first paragraph discusses the unreliability of the establishment survey, which is a key indicator of economic health. The Bureau of Labor Statistics (BLS) has been revising its payroll numbers, leading to confusion and a lack of confidence in the data. The paragraph highlights the significant downward revisions in December and January, which contradict the initial positive reports. It also points out the discrepancy between the establishment survey and the household survey, with the latter showing clear signs of a recession through a decline in employment levels, hours worked, and an increase in part-time jobs. The paragraph emphasizes the importance of these surveys and the need for accurate data to understand the true state of the economy.

05:03

📊 Household Survey Signals and Recession Indicators

The second paragraph focuses on the household survey, which provides a different perspective on employment by surveying individuals directly. It outlines the strong recession signals from the household survey, including a consistent decline in employment levels over several months and a significant drop in full-time jobs. The paragraph also discusses the historical context of these signals, noting that they have often preceded or coincided with recession periods. The narrative suggests that the current labor market trends are indicative of a potential recession, despite the establishment survey's initial positive estimates.

10:04

📈 Employment Trends and the Risk of Recession

The third paragraph delves into the specifics of employment trends, particularly the decline in full-time jobs and the increase in part-time jobs. It suggests that businesses are cutting costs by reducing hours rather than laying off workers, which is a common occurrence in a weakening economy. The paragraph also examines the unemployment rate, which has risen slightly but is still low by historical standards. However, the rate of change and the sustained nature of these trends are seen as warning signs of an impending recession. The discussion includes comparisons to past economic cycles and the potential for the Federal Reserve to respond with rate cuts to mitigate the impact.

15:05

🚨 Recession Narrative and Economic Outlook

The fourth paragraph wraps up the discussion by reinforcing the narrative of an impending recession. It reiterates the strong signals from the household survey and the part-time jobs data, which suggest a labor market in decline. The paragraph also touches on the historical precedent of the Federal Reserve's actions during the 1994-95 period, drawing parallels to the current economic situation. The speaker anticipates that the Fed will likely follow a similar path of rate cuts to avoid a severe economic downturn. The paragraph concludes with a call to action for viewers to stay informed and prepared for the economic challenges ahead.

Keywords

💡Establishment Survey

The Establishment Survey, also known as the payroll survey, is a monthly survey conducted by the Bureau of Labor Statistics (BLS) that collects data on employment and wages from businesses and government agencies. In the video, it is described as unreliable due to significant revisions and volatility in its initial estimates, which undermines its status as the 'gold standard' for employment data.

💡Household Survey

The Household Survey, conducted by the BLS, collects data on the employment status of individuals in the United States. It is considered a complementary source to the Establishment Survey, focusing on employees rather than employers. The video highlights that the Household Survey has been sending strong recession signals, with a consistent decline in employment numbers over several months.

💡Recession

A recession is a period of economic decline, typically characterized by a fall in GDP, increased unemployment, and a decrease in consumer spending. The video discusses various signals indicating a potential recession, such as the divergence between the Establishment and Household Surveys, and the decline in full-time jobs.

💡Payroll Numbers

Payroll numbers refer to the count of jobs or the number of people employed by businesses. The video criticizes the payroll numbers reported by the BLS for their unreliability due to frequent downward revisions, which suggest a weaker labor market than initially reported.

💡Benchmark Changes

Benchmark changes are adjustments made by the BLS to align survey data with comprehensive records from other sources, such as unemployment insurance tax records. The video mentions that benchmark changes have led to significant revisions in payroll reports, affecting the perceived strength of the labor market.

💡Average Work Week

The average work week measures the typical number of hours worked per week by full-time employees. The video points out an anomaly where a large increase in payrolls was accompanied by a decrease in the average work week, which led to a downward revision of the payroll numbers.

💡Full-Time Jobs

Full-time jobs are those where employees work a standard number of hours, typically defined as 35 hours or more per week. The video emphasizes a significant decline in full-time jobs as a strong signal of a potential recession, as businesses may cut costs by reducing hours or converting full-time positions to part-time.

💡Unemployment Rate

The unemployment rate is the percentage of the labor force that is actively seeking employment but is currently without a job. The video notes a rise in the unemployment rate over a 10-month period as a clear recession signal, indicating a weakening labor market.

💡Part-Time Jobs

Part-time jobs are those where employees work fewer than the standard full-time hours. The video suggests that an increase in part-time jobs can be a sign of a recession, as it may indicate that businesses are reducing hours for existing employees rather than hiring new full-time workers.

💡Soft Landing

A soft landing refers to a scenario where an economy slows down without entering a recession, avoiding a severe economic downturn. The video discusses the narrative that the Federal Reserve may attempt to engineer a soft landing through rate cuts, drawing parallels to past economic cycles.

💡Greenspan Rate Hikes

The Greenspan Rate Hikes refer to the series of interest rate increases implemented by then-Federal Reserve Chairman Alan Greenspan in the mid-1990s. The video mentions this historical event as a precedent for the Fed's potential actions in response to the current economic situation, suggesting that rate cuts may be used to mitigate the effects of a recession.

Highlights

The establishment survey's payroll numbers are unreliable due to frequent revisions.

The BLS's benchmark changes led to significant positive revisions in December and January, which have since been corrected.

The household survey is sending strong recession signals, diverging from the establishment survey.

The household survey shows a consistent decline in employment over the past few months.

The six-month average employment level in the household survey is negative, a strong recession signal.

Full-time jobs have seen a significant decline, indicating a potential shift towards recession.

The unemployment rate has increased by half a point over a 10-month period, another recession signal.

Part-time jobs have increased, suggesting businesses are cutting back on hours rather than laying off workers.

The labor market is showing signs of weakness, which is not consistent with a soft landing.

The Fed's rate cuts are expected to follow the pattern set by Greenspan in 1995, aiming for a soft landing.

The narrative of a soft landing is being compared to Greenspan's actions during the bond massacre.

The establishment survey's initial estimates are becoming more volatile and less reliable.

The average work week has decreased, contradicting the establishment survey's payroll numbers.

The household survey's negative six-month average employment level has historically aligned with recession periods.

The increase in part-time jobs is a common theme in many recession periods.

The labor market is responding to economic weakness, as indicated by the decline in full-time jobs and increase in part-time jobs.

The narrative of a soft landing is being used to reassure the public despite growing evidence of a recession.

Transcripts

it was a total and complete mess in the

establishment survey the payroll numbers

meanwhile the household survey is

sending very strong recession signals

four of them in fact three of those four

very solid clear and unambiguous about

recession and the fourth one merely

backs up the other three more and more

evidence keeps coming in that shows that

this is indeed a business cycle the

downside of the business cycle that is

more and more as more months go by

becoming more familiar as a recession

let's start with the establishment

survey because that was just a complete

mess and that's the number that most

people focus on now remember how we got

here the establishment survey last year

the BLS would issue a good number and

then revise it lower the next month or

the two months later as they go through

the revision process well we are back to

that last month the BLS did Benchmark

changes to the payroll reports which we

talked about which ended up creating

these huge positives in December and

January well now that the BLS is back to

its monthly downward revisions December

and January look very different even

before we get to February December went

from 216,000 to 333,000 that was The

Benchmark change it moved December which

was stronger than expected at 26 all the

way up to 333 and then remember the

initial January report was 353 which

blew away every estimate not only

because nobody was thinking that was

possible but because everything else in

the labor market screams the opposite of

a huge payroll number so we had two 300s

in a row that nobody was expecting again

at the same time everything else was

basically falling apart but as of today

in the latest update that December 333

has been dropped to 290 so there's

43,000 jobs gained that were never

really gained meanwhile while January

that was 353 incredible blowout payroll

number that's been dropped to

229 huge decline you put those two

together you have a cumulative downward

revision of 167,000 in2 months so we

went from two better than 300 really two

better than 330,000 to now just 290 and

229 but everyone says look at February

February comes in at 275 which is much

better than expected so even if we have

downward revisions in December and

January we've got a good one in February

and the response to that is do we have a

good one in February is it going to last

March and into April my point is as the

establishment survey continues to be

more and more volatile in its initial

estimates and then revisions it has

become less and less reliable and the

establishment survey is supposed to be

the gold standard that we all follow

follow which is why this is one of the

few macroeconomic statistics that the

general public will follow but if the

general public is following a a series

that the government that keeps it isn't

really all that sure about it what is

that actually telling us about the

actual situation what is the information

that we're getting from it it's it's not

as reliable as it's supposed to be and

it's becoming Le more noisy less

reliable all the time so the

establishment survey that look fine but

does it really look fine that's the

question we have to ask because we don't

know for sure we don't know how it's

going to come out next month or the

month after one of the things that

really pointed to the establishment

survey being way out of whack last month

with the huge January number that was of

course hours hours went the opposite

direction we had a really big down month

in hours even though this is Again The

Establishment survey drawn from the same

survey results even though it was the

same exact data at least supposed to be

hours went down Big and of course with a

huge increase in payrolls that meant the

average work week plummeted down to 34.1

hours I think that was one reason why we

see such a big downward Revision in

payrolls because it was such a such an

obvious aberration that had some that

had they pointed the finger at a

statistical issue so BLS took a second

look at January and said yeah there's no

way there was that many payrolls because

the work week is just way out of whag

so the the average work week was revised

up but only to

34.2 not a huge upward revision to the

average work week because they're weak

ours worked are still incredibly weak as

we'll see from the household survey side

there is a comprehensive picture outside

the noisiness in the establishment

survey that suggests this is indeed a

business cycle and one that has turned

very likely has turned decisively in the

direction of recession even if the

payroll the the main payroll number

doesn't show a minus sign or even looks

to be strong on its initial estimate

there's more and more evidence that

looks in the opposite

direction so let's talk about the

household survey as I mentioned in the

introduction here there were three very

very strong very very unambiguous and

clear recession signal solid recession

signals in in the household survey and

then there was a fourth that backs up

what the other three are implying we'll

start with the household survey number

itself the level of employment remember

the household survey is the opposite

side or supposed to be the opposite side

of the establishment survey The

Establishment survey is where the BLS

surveys establishments employers and

says how many people do you have on your

payrolls how many you employing whereas

the household survey asks employees

those are household how many people do

you have working in your household um so

basically look looking at the same idea

but coming at it from different

directions and the household survey has

diverged from The Establishment survey

pretty substantially for quite a

littleit period of time here it's not

this is not something new but the

household survey has its own way of

looking at the employment situation too

and over the last several months it has

become uglier and uglier and uglier

including February the latest number

according to the BLS the household

survey Lum of employment fell again

by

184,000 now it had been down 31,000 in

January but that included a negative

population control Factor but even so he

had a huge decline in December of nearly

700,000 so household survey has really

started to turn ugly here on a very

consistent basis and that's what we're

really looking for as a household survey

because it can be up and down back and

forth um not to this extreme but High

degree of variation on a month-to-month

basis so you have more and more

negatives that begin to pile up maybe

with an occasional positive in between

it starts to send a more solid signal

over a period of more than a couple

months and in fact the six-month average

in the household survey is now minus

89,000 it's a negative on the six-month

average which is our first recession

signal now I'm going going to go back to

the late 1960s here because that's

plenty we're talking about eight

recession periods up until now uh that's

gives us a very good sense of the

history of these statistics and going

back to the late 1960s what we see is

that on a six-month average basis only

14 times do we see the household survey

level of employment negative eight of

those were just outright recessions as

you can see they they match up with

recession periods pretty well because as

you would expect if households on

average are saying over a six-month

period we have fewer of us working that

sounds a lot like recession we've talked

about the hiring freeze this is the

other part of it that we've been missing

thus

far so while eight were out recessions

eight of the 14 two others were periods

leading up to recessions that was the

summer and fall of 2000 when job market

started to get weak even before we got

to the dotom recession bond market

inversions all that stuff so that was

the period leading into the do com

recession and of course the summer of

2007 which was a period leading into the

Great Recession great quote unquote

recession

so even though those two periods don't

fall inside the official recession dates

there were quite clearly the labor

market weakening on its way to recession

two other of our exceptions were just

after recessions meaning weak recoveries

it happened to be the same two cycles we

have the end of 2002 where the household

survey turned negative the jobless

recovery that plagued the Bush

Administration not that bush had

anything to do with the economy but

that's that's how it goes in politics

but the weak recovery following the.com

recession that shows up in the household

survey uh employment number and of

course the very weak recovery the not

recovery after the great not recession

so that leaves us with just two genuine

exceptions in the household survey being

negative on a six-month basis one was

October 2013 that was just the

government shutdown had nothing to do

with the economy so we can forget that

one and the only other time the only

other time in more than 50 years of

history in the household service Sur

where you have a negative 6month change

six-month average that doesn't

correspond with a recession middle of

1995 I'm going to come back to this at

the end of the video why that's so

important so let's move on to the second

second big household survey recession

signal and that is full-time jobs

something we've been talking about

because of the massive decline in

December Remember December full-time

jobs collapsed by 1 and a half million

but because full-time jobs continue to

decline what that tells us is maybe 1

and a. half million wasn't the actual

number but as we don't see any kind of

recovery or Snapback in the in the

statistics that means that there was a

substantial Decline and it is continuing

to decline it was not a one- Monon or

temporary aberration there was something

really going on in full-time employment

not just in December we continue to see

the negatives pile up here for the month

of February you had another

187,000 decline in full-time jobs that

would have been substantial even if

there hadn't been a 1 and a half million

decline in December so we're seeing

full-time jobs businesses are indeed

taking measures to cut their cost

because they must also be seeing

weakness in the general economy they're

responding to something that doesn't

look like a soft Landing really going

back to last June uh we see full-time

jobs down by 1.8 million so that gives

us a six-month average of minus

220,000 and that's our second recession

signal we look at a six-month average in

full-time employment for the household

survey uh most of them absolutely do

line up with the official declared

recessions as we would expect there are

a couple small exceptions very small

exceptions uh you got a minus 3,6 month

average in July of 1999 so that's just

in the aftermath of the Asian not

financial crisis you got small negative

in June of 2004 which is basically a

fluctuation because by then you do have

an actual recovery underway after the

docs get a small negative again July

2007 leading up to the Great Recession

and of course last year actually not

last year the year before last year it's

now 2024 so by I mean late in 2022 we

had a negative in full-time jobs as it

looked like the economy was heading

toward recession in early 2023 only to

be saved at the last minute by a couple

things the disinflation rebound and the

January 2023 cost of living adjustments

which drastically increased income but

really the only exception where you get

this deep this deeply negative on a

six-month average basis for full-time

employment is

1994 not even 1995 but 1994 and that was

a statistical discontinuity that's not a

real number that's just a problem in the

statistics where in January 1994

the uh BLS updated its its series and

didn't go back and and revise its prior

numbers which they don't do in a

household survey so outside of 1994

which is discontinuity you get full-time

employment falling this much on a

six-month average basis so for this

prolonged period That's a solid

recession

signal signal number three the

unemployment rate now although the

unemployment rate came in at

3.9% in in the month of February because

full-time or because household survey

measure of employment declined and

although the labor force ticked up that

just meant that those who entered the

labor force actually be became

officially unemployed they didn't find a

job because jobs were shrinking

according to the household survey so the

unemployment rate moved up to 3.9% which

is the highest thus

far and though that sounds like not much

of a big deal 3.9% is incredibly low

it's not far off of what was a 50-year

loan

however it's not the level it's the

amount the unemployment rate has changed

in a relatively long period of time

we're going back 10 months now and the

unemployment rate is actually up half a

point which is our recession

signal we see very few times outside of

recession when the rate has gone up over

a 10mon span there's a couple times when

the unemployment rate moved up by a few

tents in the middle 1980s there was late

1995 that one comes back there 1998 the

uh 1999 the Asian not financial crisis

that just moved up by a tenth of a a

point uh both before and after uh 1989

1990 that was you know looking like the

unemployment rate was breaking out in

late 1989 and into early 1990 before we

got to the real SNL recession later on

1990 and of course the there was a first

jobless recovery in the aftermath of

19991 that shows up there plus 2003 same

thing jobless recovery so the only time

we see a half Point increase over a

10-mth period in the unemployment rate

though that is clearly a recession

signal so the other exceptions never got

to half a point half a point is where we

get to that threshold where unless this

time actually is different and in a

number that everybody actually does

watch everybody pays attention to

unemployment rate this is one that is

solidly recession

our fourth signal is actually part-time

jobs and this one is less consistent but

something that we do see in many

recession periods part-time jobs

actually increase by a lot and the

reason they're increasing by a lot is

because many workers are being cut back

in their hours which means they they

longer they no longer qualify as being

full-time so fewer full-time jobs and

more part-time jobs so workers are being

converted as business business instead

of just laying off workers they also cut

their cost by working them less this is

a theme that we've been coming back to

over and over again over the last seven

eight months 10 months now full-time

jobs as I mentioned those those are down

about 1.8 million since June part-time

jobs are up about 1.7 million which kind

of works out again suggesting that a lot

of workers have seen their hours cut

which goes along with the hiring freeze

that we keep talking about too and we

saw the same thing happen in the 2007

2008 2009 cycle from March to September

2008 you saw a modest increase in

part-time work then the big jump later

on in the uh recession uh again the

summer of 2000 and then the summer of

2001 that's a little bit of a increase

in part-time jobs but the real another

big increase 1981 82 you get a modest

increase in 81 and then the bigger jump

later later on in the recession process

which raises a bunch of questions

because we've seen part-time jobs in

full-time job part-time jobs really

increase in full-time jobs really

decrease which is normally a later

recession or later stage recession type

of process so that's another one that

backs up the three other very solid very

clear recession

signals and because of that because the

labor market is actually relatively weak

and getting weaker substantially weaker

the fed and its rate Cuts I want to come

back to 1994 95 and Josh who's you

always listen to Josh Josh says we

should do a whole video in 9495 the bond

Massacre the greenpan rate hikes but

what Greenspan's really known for is

after hiking rates from January 1994 to

February

1995 um from 3% to 6% that's the federal

funds Target we got some weakness in the

real economies I mentioned the household

survey turned negative on a six-month

basis there was a little bit of a an

issue with full time jobs Greenspan then

cut rates at the first of all in July of

1995 and then two two more times in

December 95 and January 96 and of course

there was no recession he has been given

credit by some Economist with

engineering a soft Landing I don't think

the weakness was all that much obviously

we didn't see the same recession signals

in a broad survey of data like we have

seene today but that's the legend of

Greenspan one of the myths that cemented

the reputation of the FED during the

Great moderation as it came to be known

later and that's what J Powell is going

to do and and that's the idea he's going

to give you moving forward as the

economy continues to weaken and it looks

more and more like a recession like we

all picture a recession Paul is going to

point to 1995 and say after the huge

rate hikes greenpan engineered a soft

Landing with a couple nice gentle rate

Cuts that's what we've got planned for

you in 2024 and maybe part of 2025 no

big deal don't worry about these

negative numbers just know that we have

you cover I'm going to pull another

green Span in 1995 that's the narrative

that we're going to get moving forward

as the economy moves into

recession The Establishment survey

complete mess it's unreliable it's

becoming more unreliable not less

especially the revisions which are just

making a joke out of the what's supposed

to be the gold standard the household

survey three really solid recession

signals here including the unemployment

rate it's not the level it's the rate of

change and it's how sustained all of

these changes are over more than a month

or two so we got three solid recession

signals plus the part-time jobs which

backs backs up what we're seeing in

full-time employment more and more it

looks like a recession more and more

evidence is coming down that businesses

are indeed responding to not a soft

Landing

I did a full video just recently on how

American workers can feel this recession

coming and now that we have even more

data backing them up it's worth

revisiting that's the one linked below

as always I thank you very much for

joining me huge thank you to eural

University members and subscribers until

next time take

care