Brief comments on the upcoming US employment numbers

This is a silver level post. Coming up on Friday we get the latest monthly jobs numbers and they are awaited with great anticipation by the market. Of late, the headline numbers have been terrific, but can it last?

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This is a silver level post.

Coming up on Friday we get the latest monthly jobs numbers and they are awaited with great anticipation by the market. Of late, the headline numbers have been terrific, but can it last?

I think it can, meaning i think we are going to see a relatively good non-farms payroll number but there are some problems beneath this.

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First, the economy lost a lot of jobs over the last decade between the two recessions following the technology and housing bubbles. We would need to see 400 or 500,000 job numbers to really show robust growth that gets us back to trend. That’s not going to happen.

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Second, the real problem in terms of growth is demographic. Many of those dropping out of the labour force are near-retirees in their 50s and 60s. These people have been forced out of the labour market – and they’re never coming back. This low labour force participation rate is a secular trend that will last. Moreover, as baby boomers retire the trend will get worse because the demographic cohorts behind the baby boom are considerably smaller than that generation.

So, the best thing we could hope for is a +200K print and a slight increase in the unemployment number because of an increase in the labour participation rate. This combination would signal job growth where some people are coming back into the labour market. And the increased headline unemployment number would give policy makers an excuse to continue accommodative policy, which is supportive of asset prices.

Longer-term, however, the demographic issue is a huge overhang that will mean slower growth which will disappoint those looking for a turbo-charged economic turnaround.

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