The myth of the tight US labour market (Bloomberg Opinion)

Despite last Friday’s fantastic payrolls number, the US employment picture isn’t all roses. The US Coincident Employment Index, produced by the Economic Cycle Research Institute, offers a more reliable measure of employment because it derives its number from government, business, and household data; however, it’s at its worst level since 2013. More interestingly, the reading undergoes an annual retrospective benchmark revision, which adjusts the prior print for actual data and reveals the predictive power of headline employment data, like ADP Employment or Non-Farm Payrolls. 

Now here’s the rub: the data appears to show that employment has fallen by 200k people since December 2018, while unemployment has declined by 400k over that same timeframe. When you realise the unemployment decline is due to people leaving the labour force, it results in 600k fewer jobs or 0.33% reduction in employment. That’s hardly the trend you wish to see from the world’s largest and strongest economy.

Bottom line: In this context, the ‘great’ Non-Farm Payrolls number last week shouldn’t change the Fed’s view about an interest rate cut.  At the same time, most central bankers agree that additional monetary policy easing will yield little economic growth. Unfortunately, there seems to be little happening to introduce a fiscal response to this problem, leaving central banks to shoulder the burden once again.


The week ahead


It’s a relatively light week for UK data, which means the focus will likely remain on the Johnson vs Hunt contest for Number 10. 

  • Manufacturing Production and Construction Output figures will be the only big UK data points this week. Given the decelerating Purchasing Managers’ Index (PMI) survey data, these monthly figures become more significant signs of trouble


Last Friday’s robust labour market data has changed the interest rate arithmetic in markets, but it’s unclear whether it’s had the same impact on Fed policy members. Fed member speeches and Federal Open Market Committee (FOMC) meeting minutes will be the attraction this week.

  • Fed Chairman, Jerome Powell, will be speaking on Tuesday and testifying before the Senate on Wednesday and Thursday
  • Fed members Bullard and Quarles are speaking Tuesday, Wednesday, and Thursday
  • The FOMC meeting minutes will be out on Wednesday


Other than some monthly industrial numbers on Wednesday, the calendar is quite sparse this week. Given the ongoing slowdown in the EU, pressure is building for a much-needed fiscal policy response from EU ministers. Not surprisingly, our focus will be on:

  • Eurogroup meeting on Thursday
  • Eurofin meeting on Friday