CAMS Weekly View from the Corner - Week ending 11/10/23
November 13, 2023
After the most recent Fed meeting Chairman Powell emphasized he and his fellow Federal Open Market Committee members are not sure yet whether they have achieved an interest rate level that will be sufficiently restrictive to bring price inflation back down to their 2% target level. He emphasized how in-coming data – broad data not just X price inflation measure – will help them determine whether or not they will need to raise rates again in the near-future.
A significant part of that broad data view will not only be price inflation measures but also general economic releases along with various details within each release that will offer insight into the general pricing backdrop relative to its downstream impact or potential impact on price trends.
The employment market will be one such measure that will certainly get scrutiny throughout the details of X employment release.
Back in late spring we offered an edition on what we think of as one of the early warning indicators for the employment landscape. In light of Powell’s recent emphasis on how unsure they are relative to near-term interest rate increases we thought it timely to look back on this measure known as Weekly Unemployment Insurance Claims.
For perspective, since the previous edition on this topic we thought it appropriate to offer some recent context so we excerpted the chart that we had shared in the edition from back in late spring.
Above is the Weekly Claims chart that covers the previous couple of years up to the point of our previous edition on this topic released in early June.
Reflecting our vigilance on this employment measure coupled with the endless recession calls that had been made by X narratives over the previous couple of years up to that point in time we were noting even the slightest changes in this important employment metric. Our Red horizontal lines note our focus.
The first and longest red line offered how essentially there was nothing to see here being it continued to reflect very low numbers week after week after week with it at times dipping to sub 200,000 Claims.
One simple way to view this data set is to look at it as the lower the number the stronger the employment backdrop. Sub 200,000 Claims, for context, is a very low number historically speaking.
With this we were looking for any change in character regardless of how small essentially in light of X recession narratives. Sub 200,000 Claim results and imminent recession usually do not coexist – like oil and water or unicorns running around. Perhaps “down the road recession” but “imminent” is another matter.
Per our second red line we noted a behavioral change. First, a new higher range had developed whereby we began to see consistent Claims in the 240,000 area which was not a tremendous increase but nonetheless under our aforementioned vigilance we thought it worthy of noting.
Then we seen a break higher out of the second redline that was beginning to offer even more behavioral change with what looked like may be a developing uptrend. At the time of our early June edition we left it at that under the in-house “watch list” whereby the change was worth noting and yet needed to be monitored.
Since June we have not addressed this topic again because essentially there was nothing to address.
Above is the Weekly Claims data for the previous couple of years just as the first chart depicted. The above is updated to current day.
Our red arrow notes what has occurred since our edition in early June. The downtrend speaks for itself. We have at times dropped down as low as 200,000 Claims since our June edition. This measure through the summer and early fall seasons continued to point to a healthy employment market.
Even with our most recent uptick within the red line downtrend range we are still seeing low 200,000 readings. As it stands with the most recent update of this weekly data there is nothing of significance registering and the behavioral change that was attempting to develop disappeared quickly.
Just as we left off in June we leave it the same way in this edition: Await further data for additional information.
As it stands, the employment market remains healthy. Like anything economic related this is not set in stone and can change abruptly. We thought we were potentially seeing a change back in the late spring season but it essentially went away as fast as it appeared.
Perhaps We Can Have Them Play Checkers and Chess
It is worth noting when addressing Weekly Claims data that there has been a long held discussion within analytical circles that employers will be willing to hold onto their employees even if weaker economic times unfold in light of how difficult it has been in recent years to attract personnel.
On personal note I chime in with some sarcasm via our sub-title above. Let’s leave theory and go to hardnosed reality.
A primary expense line on a business Profit & Loss (P&L) statement is labor costs. These labor costs are offset of course by revenues (sales) as personnel play their role in creating and satisfying customer needs regardless of products or services offered.
Imagine an economic environment that recesses and through this businesses see demand for their products and services wane. Depending on the severity of the recessionary environment offers a variable on how much demand wanes for individual businesses.
Through this waning, while incurring a consistent reduction in product demand, can we really expect businesses en masse to continue to service this tremendous line item expense in the P&L statement while there is an on-going reduction in revenue and ever less for personnel to do on any given day.
I have sarcastically offered perhaps they will pay personnel to play checkers and chess but we all know that will not be the case. If a recession visits and demand wanes personnel will have much less work and with this, through the lens of economics, X business will see their unit labor costs rise dramatically!
That is, the labor cost of each unit of product produced will trend higher if not soar according to the severity of the hypothetical recession. You want to see a business go out of business? Have their unit labor costs rise and trend strongly upward on a consistent basis – given enough time – they gone.
With this we continue to offer Weekly Unemployment Insurance Claims are an important and viable metric to follow. As we stand, up to the most recent release, this metric is offering our employment market remains healthy. This is always subject to change of course – welcome to economics right.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
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