US employment data: perched atop an inventory cycle!

US employment data looks to be perched atop an inventory cycle, and given that the recent rise in inventories is high historically, recent employment data may well not be as strong an indicator of the health of the economy as some may think. 

The following chart shows the real change in inventory levels as noted in the BEA quarterly GDP accounts:


The green line is the average positive real change in inventory levels in quarterly accounts back to Q1 1999, and the red the average of all changes in inventory levels (+ve and negative).   As you can see the current cycle from Q1 2013 is the strongest over the period shown.

This has likely impacted the positive showing in goods producing employment:


Outside of manufacturing, transportation and warehousing and construction, employment trends look to be settling down:


If the employment situation has benefited from rising inventories then we should expect weakness if the PCE component of GDP continues to show weakness.  Likewise, we also need to be wary of strength in global economies and therefore the post summer weakening in European growth fundamentals.

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