Saturday, May 9, 2015

A scary thought about US employment

The markets staged a risk-on rally on Friday, sparked mainly by the Goldilocks not-too-hot-not-too-cold Jobs Report. I was reviewing some figures and charts on the weekend and saw this chart on Doug Short's weekly unemployment claims page. I couldn't help but ask, "Is this as good as employment can get in this economic cycle?"

To be sure, unemployment claims were lower in the late 1960's and early 1970's, but if you were to normalize claims by the size of the labor force, a difference picture appears. The unemployment claims to civilian labor ratio is at all-time-lows!

The record low could be attributable to problems with the participation rate, which has shrunk the size of the labor force. Nevertheless, these charts are highly suggestive that there isn't a lot of labor slack, which could prompt the Fed to be more aggressive in normalizing interest rates.

When viewing the US economy through the weekly claims prism, this analysis presents a scary thought for the prices of risky assets.

1 comment:

Andrew Naughtin said...

Cam, Buffett's recent comments on Squawkbox were that equities are very cheap compared to bonds. Obvious fact. The dynamics of how asset prices get back into balance is much less obvious. I'm interested in your thoughts on it if you have any.