The Recession Just Hit The Job Market
Summary
TLDRThe 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
- ๐ The establishment survey's payroll numbers are highly volatile and unreliable, with significant downward revisions in recent months.
- ๐ The BLS's benchmark changes have led to confusion in interpreting the labor market's health, with December's numbers being particularly misleading.
- ๐ The household survey, which gauges employment from the employee's perspective, is sending strong recession signals, diverging from the establishment survey.
- ๐ The six-month average employment level from the household survey is negative, historically correlating with recession periods.
- ๐ A substantial and ongoing decline in full-time jobs, as indicated by the household survey, suggests a weakening labor market.
- ๐ The unemployment rate has increased by half a point over a 10-month period, which is a rare occurrence outside of recessionary periods.
- ๐ An increase in part-time jobs often accompanies a recession, as businesses cut back on hours rather than laying off workers.
- ๐จ 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.
- ๐ก 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.
- ๐ 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.
-null
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.
-null
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
๐ 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.
๐ 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.
๐ 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.
๐จ 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.
Mindmap
Keywords
๐กEstablishment Survey
๐กHousehold Survey
๐กRecession
๐กPayroll Numbers
๐กBenchmark Changes
๐กAverage Work Week
๐กFull-Time Jobs
๐กUnemployment Rate
๐กPart-Time Jobs
๐กSoft Landing
๐กGreenspan Rate Hikes
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
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