The average 3-month change for private payrolls firmed to 206k in May, well up on the pace of job creation in Q4 of last year (155k). The share of industries contributing to job gains in May was the highest since January 2023. The measure of employment derived from the household survey (CPS) has admittedly been weaker. But the establishment survey (CES) has a much smaller margin of error on the measurement of m/m changes. Even with the recent uptick, the jobless rate has now been stuck below 4% for 28 consecutive months, the longest stretch of sub-4% unemployment since the 1950s.
Admittedly, response rates have been tumbling for both BLS surveys over the past 10 years. This should naturally shift the emphasis onto the claims data. The 4-week moving average for unadjusted initial claims has fallen even further below last year’s levels. Cross-checking the labour market data with Treasury receipts: individual withheld income taxes rose 6.7% y/y in April (smoothed over six months), a marked acceleration, corroborating the strong payrolls report. The Q1 flow of funds data published by the Federal Reserve last week underlined another important aspect of this current cycle. Household deleveraging is ongoing, with liabilities falling to just 72.9% of GDP in Q1, the lowest since Q2 2001. Household net worth rose to 776.2% of disposable personal income.
Interest rates in the US are arguably at neutral. If the Fed is dovish, this will simply contribute to a further sell-off in the long end of the Treasury curve. With the current rate of deficit spending, it remains hard to make a bull case for bonds. Removing the effects of the student loan cancellation, the 12-month moving total for the federal budget deficit widened to $2.06tr last month (approximately 7.2% of GDP). The CBO also warned that several factors will cause the deficit for 2024 to be revised higher relative to its February projection.
