Breathe, Breathe In The Air

After digesting the latest employment data, I couldn’t help but think of the classic Pink Floyd song, “Breathe.” You could almost hear Federal Reserve (Fed) Chairman Powell breathe a sigh of relief following the release of the May jobs report. Pressure, external—and in some cases perhaps internal—seemed to be building for the Fed to begin their discussions about when/how to begin tapering their current quantitative easing (QE) program. While the May employment data continued to show progress being made within the nation’s labor markets, it fell short of creating any urgency for the Fed to shift course in the immediate future.

Total Nonfarm Payrolls

Figure 1_ Total Nonfarm Payrolls

Total nonfarm payrolls (NFPs) rose by +559,000 in May, once again falling visibly below the consensus forecast of +675,000. If there is a silver lining, at least this time around, it’s that it wasn’t the “worst miss” on record. As you can see in the above graph, the pace of improvement for NFPs has definitely trailed off. Through October, job gains had recovered 55% of the plunge in job losses that occurred during the height of the pandemic shutdown in March/April 2020. However, that figure has only managed to climb to about 66% through May. In other words, incremental progress of only a little more than 10% over the last seven months.

A great deal of attention has been placed on inflation of late, and rightfully so, in my opinion. However, Powell & Co. have tended to downplay that portion of their dual mandate (it’s just transitory, remember?) and instead focus on the employment aspect to continue to justify their unprecedentedly stimulative monetary policy. While the unemployment rate fell -0.3 pp to 5.8%, this had more to do with a decline in the civilian labor force as the “participation rate” dropped during the month. Based upon the May jobs data, the employment part of the equation still has a way to go, especially in Powell’s eyes.

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