Wednesday, April 2, 2014

US job market healing

We are seeing signs of significant improvements in US labor markets. The ADP report today was certainly an indication of recovery from the winter slowdown.
ADP: - Mark Zandi, chief economist of Moody’s Analytics, said, "The job market is coming out from its deep winter slumber. Job gains are consistent with the pace prior to the brutal winter. The gains are broad based across industries and business size classes. Even better numbers are likely in coming months as the weather warms.”
One area to watch in the ADP report is construction (see post), as construction payrolls have consistently increased each month over the past year. With demand for rental units remaining high, this sector could pick up quickly.

But signs of improvement go beyond the ADP measures. Gallup's Job Creation Index for example rose to the highest level since 2008.

Source: Gallup
Gallup: - U.S. workers in the private sector are reporting a more positive jobs situation where they work than at any point in the past six years. Combine this with state workers' record-high job creation reports and the year-over-year improvement from federal workers, and March's promising Job Creation Index reading would appear to be a positive sign in the long recovery from the 2007-2009 economic recession.
Furthermore, the ISI's survey of permanent placement (recruiting) firms shows a surprisingly robust improvement in activity recently.

Source: ISI Group

Companies are paying more to find employees, which is consistent with the recent report showing that small businesses are complaining about labor quality - something they weren't doing much a year ago.

Source: Source:

The markets are starting to recognize this change in labor markets, with the 10-year treasury yield rising nearly 12bp from a week ago. Another market example of this improvement is the recent spectacular rally in the shares of a large recruiting firm, Korn Ferry (KFY).

blue = Korn Ferry shares, orange = S&P500 (source: Ycharts)

Clearly we will see some volatility in the official payrolls numbers going forward, but the signs of US labor markets firming are unmistakable.
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