The US economy is no ordinary cake in the oven and the release of the latest employment numbers do nothing to disprove this analogy. Global economic growth is continuing to slow as evidenced by trade numbers, manufacturing data and a host of PMIs. The direction of cause in this most recent of trends has been from key emerging economic regions. The direction of cause is one for concern given the importance of the development of consumer markets in emerging economies to aging and slowing developed economies. A slowdown in emerging market growth is important for asset markets and financial stability (loan servicing and financing) given that asset values and debt financing are heavily predicated on a discounted future. The possible impact on global growth and financial stability of this reversion of cause and hence flows may well prove to be of significance.
Visually, if you were to focus on annual employment data, we would still appear to be in the midst of stable if not wildly robust job creation:
But it is shorter term data that is raising concerns: slowing job growth at the start of the year looked to have been a response to an above average spurt in employment growth/economic activity towards the latter part of 2014. There was a spring rebound, but the trend in growth since the early summer has been down and the last two months in particular have shown material weakness: not only do we have two weak months but prior numbers have been revised down. Furthermore the weakness in employment growth has been accompanied by a clear deceleration in global economic growth, in particular manufacturing, so the numbers have a non random context:
The recent monthly data puts employment growth into much weaker territory:
A further perspective is found by averaging the last six months of data and then applying the usual monthly, quarterly, 6th monthly and annual analysis converted to monthly rates of change:
The rollover is clear once we close in on the epicentre, manufacturing:
And while the recent slowdown is wider spread, the extent of the easing is as yet nowhere near that seen in manufacturing and would in and of itself not necessarily attract that much attention. Is the domestic economy sufficiently strong to weather the global, emerging market led, slowdown? GOOD QUESTION!
Many have pointed to rising incomes and the confidence seen in record auto purchases, but I have issue with this.
There are 2 areas of concern, 1 is consumer credit growth which has been a major factor driving consumer expenditure in the last year or two and number 2 is inventories.
But first to the personal disposable income growth positives: following declining growth in the first quarter, income, both at a nominal and real level has been rising:
But not so much if we exclude current transfer receipts:
And at the average wage level, income growth has stayed moribund:
More importantly the reliance of consumption expenditure on consumer credit is a considerable concern: consumer credit growth is at an all time high of close to 60% of personal disposable income growth and hence demand is going to be increasingly sensitive to short term financial shocks at a time when wage growth is still meek:
It is also worthwhile keeping an eye on longer term income growth dynamics here:
And of course inventories in the current cycle are running high and likewise, similar to consumer credit, an area of particular sensitivity to short term economic shocks:
All this at a time when long term labour growth dynamics are ruling against robust demand growth, note labour force growth:
And employment growth:
And I have previously commented on my concerns re the balance and make up of employment growth: gains in health care and social assistance and food and drink services, give or take a couple of thousand jobs, are equivalent to total employment gains since 2007:
Indeed, what would current weak employment growth numbers look like with the upsurge in health care and social assistance jobs:
On the whole the entire employment picture remains skewed post crisis: