This Week’s Economic Update, June 5, 2023

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One third of the baseball season is done.  It has been an interesting year so far.  Who to feel sorry for?  The Blue Jays and the Red Sox.  They are 9.5 and 10 games out as of Friday in the toughest division in baseball.  The Blue Jays would be tied for first place in the central division, but alas, at nearly 10 games out they are unlikely to make the playoffs unless they can overtake the Yankees.  How about the Twins? They paid huge salaries to Byron Buxton and Carlos Carrea, neither whom are able to successfully swat flies, let alone a fast ball this year.  The lucky duck of the year award goes to the teams in the Central division in the National League.  There is a good chance that one of them will make the playoffs with a losing record. 

Manufacturing continued to contract in May.  The various Fed manufacturing reports were all off for the month.  The ISM report dipped slightly from April to May, settling in at 46.9.  This is the seventh month in a row of contraction.  None of the forward looking indicators in the report show any sign of future improvement.  New orders and backlogs are down so future production improvements do not appear in the cards. The only area of increase was in hiring which is unexplainable at this time.

The labor market is also an enigma right now.  There are some conflicting reports, but overall, the signs are that the labor market is surprisingly resilient.

The JOLTS Job Openings report saw a rise of 400,000 job openings in April.  The jobs offered now total over 10 million.  This likely relates to the continuance of the low level of initial and continuing jobless claims.

On Friday the US Farms payrolls were well above the expectations, with an increase of 339,000 in May.  There were 64,000 new hires in professional and business services, a very strong showing. Government hiring totaled nearly as much at 56,000. Health care, up 52,000. Leisure and hospitality, likely prepping for the Summer season, was up 48,000.  This performance indicates that the service sector in the economy is still strong, boosting the second quarter GDP. 

The JOLTS Job Quits report is very interesting.  This report has detailed the era of the Great Resignation pretty well.  Prior to the pandemic this number was hovering around 3.5 million each month. In 2021 this number began to spike upward as employees began to jump to new positions.  Taking new jobs during 2021 provided a significant wage increase for many ship jumpers.  It was also a sign that the job market was very strong as candidates could leave an existing job for virtually any reason and get picked up by another company quickly.  The job jumping peaked in 2022 at 4.5 million in one month.  It is now off the peak at 3.7 million.  This is still high by historical standards but could be an indication that companies have stopped offering high wages for those willing to move and/or that employees are more worried about possible layoffs in the future at new locations.

First quarter non-farm productivity fell 2.1%.  For the past five quarters the level of productivity has declined, the longest such decline since 1948.  This of course is fueling a portion of the inflation we are experiencing.  As companies hire, as we saw in May, you would expect there to be a high demand for products.  However, the economy appears to be rather flat.  With productivity lagging so badly, companies appear to have to hire more just to keep up since the labor force is just not producing at levels in prior years.  This could be the quality of the candidates being hired.  It could be companies holding back on investments in new equipment and/or it could be a demographic shift in this generation that is focused on meaning over money and just not interested in working right now.  Welcome to Summer, Have a great week.



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