The Labor Market

Hey everyone and thanks for jumping back Into the macro reverse today we're going To take a look at the labor market Specifically we're going to discuss Initial claims continued claims and the Unemployment rate as it relates to Recessions if you guys like the content Make sure you subscribe to the channel Give the video a thumbs up and also Check out the sale on into the Cryptographers premium at into the one of the things that You'll see time and time again during Phase is a cycle like this is the the Idea that we constantly are worrying About something right whether it's the Student loan repayment starting back up Whether it's the you know the banking Crisis whether it's the you know the the Debt ceiling there's always going to be Something to worry about okay That kind of goes into the idea of Climbing the wall of worry but the only Thing that I think is really worthwhile To spend a lot of time focusing on is The labor market and normally it's once The labor market goes that you can Expect the market to to pay attention Now that's not to say that no other Events don't affect the market they do But typically those events are things That are not thought of ahead of time Right so the idea that student loan Repayments are going to cause the market

To crash or something seems somewhat Silly Um again what's more likely is is does The labor market go or not because if People lose their jobs then that really Does affect the overall economy is that That would actually affect the consumer Um in a in a quite substantial way So again I I do continue to remind People that my view is that uh there's a Thousand things to worry about but the Main thing to pay any attention to is The labor market it's not to say that Those other things can't affect the Market they they can and and even with The pandemic we saw that you know that There are things that can't affect the Market but typically when those things Affect the market it has to be something That's coming out of left field and not Something that that the Market's even Thinking about so with that in mind I Want you to take a look at the labor Market here we are looking at initial Claims uh you can see that it is slowly Moving higher the reason why this is Relevant is because we spent several Weeks in the 220 to 240 range 220 240 000 in terms of initial claims Um about a month ago or so there was a Move higher to around 260 but that was Revised back down after it turned out That a lot of those claims were actually Fraudulent but now we've actually

Received three weeks in a row where Initial claims are above 260. we had 262 And then 264 and then 264 again now all Things considered the 260s isn't really Enough to make a substantial impact or Dent in the unemployment rate but it Does show that there is at least some Softening of the labor market there is At least some softening going on and I Mean to see the unemployment rate move Up in the material way you know say five Or six percent you would need to likely See initial claims you know in the 300s At the very least Um to see a more substantial impact I Mean even the 260s while it could get us You know it could certainly get us to Around four percent uh it is still Relatively low in the grand scheme of Things I mean just look where we are uh And and where we've been in the past I Mean you know this isn't really that low Of a level now you can go back to the 1960s late 1960s early 1970s where You'll find where the unemployed or the Initial claims also started off around This low and then they initially then They have eventually they spiked all the Way up to to around that um you know That 400 000 level maybe not quite uh But it did get relatively close to Around 374 000 and and during that time We know that the unemployment rate went Up and we'll take a look a closer look

At that but in general it's more or less The the the way it's moving as as Opposed to the absolute uh value of it And right now you can see that it has Been slowly moving higher really ever Since September of 2022. now continued Claims Um has has actually been moving somewhat Lower recently after a fairly large Spike coming also out of September 2022 So the bigger question is is this just Where It ultimately ends up or will it Continue to go higher and I think as Long as the FED continues to raise and Or the FED holds rates at higher levels There still will be a a Tailwind for Things like continued claims to go Higher even if in the short term uh Since you know the last couple of months Or so it's been more or less trending Down okay So I would I would look towards Continued claims to see what that does You can see that these current high that It put in is actually really similar to Where it was back in in March of 2019 During that period it came back down Until August of 2019 and then it shot Back up obviously to much higher levels Uh due to what happened with the with The pandemic but I do think both of These are worthwhile to watch and and Going back to to what we talked about Earlier with the initial claims going up

To almost 400 000 I think around 374 000 Back in the early 1970s you can see that The unemployment rate ended up going out To about six percent or so Um the other thing I want to draw your Attention to is how the initial claims Tends to bottom out before the Unemployment rate does at least this Cycle you can see initial claims found This low in September whereas the Unemployment rate was still at 3.4 Percent as as recently as April so seven Months later that's actually pretty Normal to see that clunk that to see That kind of stuff it it not always does It occur where where initial claims Bottoms out I imagine but I think most Of the time and maybe it's all the time But you can look over here there's Another period right here where the Unemployment rate uh was was 4.7 percent And moving lower while initial claims Had bottomed out at 282 000 but the Unemployment rate didn't really bottom Out Until May of 2007 while initial claims Had bottomed out in January 2006 so you Can see there's a lag here but once the Initial claim started to move materially Higher eventually the unemployment rate Followed and that's of course where the Recession occurred you can look over Here as well uh initial claims bottomed Out at 268 000 uh back in December of

1999 and the unemployment rate really Didn't Um uh find its low until about April of 2000 so a few months later but again it Was it was ultimately the initial claims Moving higher that really dragged the Unemployment rate higher and and you can Go back and look at at prior Cycles as Well where the initial claims bottoms Out before the unemployment rate does in The 1973 cycle you can see that initial Claims bottomed out at 214 000 before Starting to move higher the unemployment And this occurred in in December of um Of or sorry this occurred in January of 73 whereas the unemployment rate didn't Bottom until October of 73. over here You can see initial claims bottomed out At 318 or 360 000 in October of 78 but the Unemployment rate didn't bottom now Until until closer to around May of of 79. so what you're seeing now is Actually not that unusual it's pretty Common to see initial claims bottom out Before uh before the unemployment rate Moves up but as the initial claims move Higher we would generally expect the Unemployment rate to move higher Although remember this can this can Operate on a very slow time scale these Periods where the unemployment rate goes Up can can take place over you know a Year or so and it's obviously it's not

Going to be completely obvious in until You can look back on it in hindsight a Few years from now but I would keep a Close eye on the unemployment rate it Did move up from three four three point Four percent to 3.7 percent not too long In the last month Um and so if we get the next data point And it's showing an elevated print then Then that would be a more a more clear Sign that the labor market is is Softening up so I know the markets are Are interesting and they're crazy and They're volatile but don't forget the Labor market because the market does Tend to care about the labor market it's Just that for the longest time the labor Market can remain stubborn but as History shows us as the business cycle Shows us as and as initial claims go Higher so too eventually will likely the Unemployment rate go higher as well Although there can be a lag of you know Six 12 months or even more just like We're seeing today if you guys like the Content make sure you subscribe to the Channel give the video a thumbs up and Again check out the sale on into the Cryptographers premium at into the that'll wrap it up we'll See you guys next time bye


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