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.