MacroPass: Ed Yardeni On The Labor Market, Fed Rate Cuts & More

Digging deep into the key economic indicators

This week’s installment (the tenth) of our new MacroPass service for premium members of this Substack comes from Ed Yardeni, founder of Yardeni Research.

Ed is a prodigious publisher of macro and market analysis, and his MacroPass contribution here is a compilation of all of his investor briefings issued this week.

His thoughts on inflation, his interest rate outlook, his interpretation of this week’s Federal Reserve guidance, the future of home prices, the snap French election and the ripple effect that’s having on the bond markets — all that and more is covered in detail below.

If you somehow missed our previous announcements, MacroPass is a weekly rotating selection of premium analysis from many of the big thinkers interviewed on Thoughtful Money.

To-date that list of contributors includes experts like Stephanie Pomboy (Macro Mavens), Danielle DiMartino Booth (QI Research), Tom McClellan, Michael Howell (Capital Wars), Darius Dale (42 Macro), Doomberg, Kevin Muir (The Macro Tourist), Alf Peccatiello (The Macro Compass), Lance Lambert (ResiClub), Ed Yardini (Yardini Research), David Hay (Haymaker), Melody Wright (M3_Melody), David Stockman (Contra Corner), David Brady (FIPEST Report), John Rubino and Adam Kobeissi (The Kobeissi Letter). And Sven Henrich (Northman Trader) just agreed to join…

The reports issued so far in this MacroPass series include

• David Stockman on stolen economic growth

• Michael Howell on global liquidity

• Melody Wright on mortgage default risk

• Edwin Dorsey on the short argument for Primerica

• Danielle DiMartino Booth on the debt-default reckoning lying ahead

• David Hay on the wild action in the Japanese yen

• Kevin Muir on the emerging opportunities in Chinese stocks

• Alf Peccatiello on the growing fragility in credit markets

• Tom McClellan’s excellent April Market Report

If you’re already a premium subscriber to this Substack, just continue below to read this week’s report from Ed.

And if you’re not (yet), read the start of it below. If you like what you see, just upgrade to premium and access the full report, as well as all past and future MacroPass content.

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June 10-14, 2024

Weekly Briefing

This is a weekly recap of our Morning Briefings.

June 10, 2024

To Tell The Truth

Check out the accompanying pdf and chart collection.

Executive Summary: How the labor market is doing is critical to the Fed’s setting of monetary policy given its dual mandate to steer the economy away from both too-high unemployment and too-high inflation. But gauging how the labor market is doing can be a stumper: Two different employment indicators point in different directions. … Less ambivalent are the indicators of wage inflation: All point to continued moderation. … We believe the labor market has been normalizing to its pre-pandemic state and remains robust. But what the Fed makes of the labor data and may do in response is another stumper. We’d like to see it keep monetary policy as is for now. ... And: Dr. Ed reviews “A Gentleman in Moscow” (+ + +).

US Labor Market I: Pick One Measure of Employment. “To Tell the Truth” was a television game show broadcast by CBS from 1956 to 1968. Four celebrity panelists had to question three contestants to determine which one of them was telling the truth about their unusual occupation or experience. The two imposters had to lie, while the Real McCoy had to tell the truth.

On Friday, we learned that payroll employment rose 272,000 in May, while household employment fell 408,000 during the month. Which one is telling the truth about the economy? The first measure counts the number of jobs, including full-time and part-time ones. The second measure includes the number of people with jobs, no matter whether they have one or more. So one payroll employee with two jobs counts as two jobs in the payroll employment data but only one employee in household employment.

The two series’ discrepancy in May is nothing new. They’ve been diverging for a while (Fig. 1). Since January 2022 through May 2024, payroll employment is up 3.9 million, while household employment is up 5.3 million.

So, again, which one is telling the truth? We choose the payroll measure because it is based on employment as reported by a sample of employers, while the household measure is based on phone interviews of a sample of households. The ratio of the former to the latter has been trending higher from about 75% at the start of the 1950s to 98.4% currently (Fig. 2).

One possible reason for this development is that more Americans don’t feel comfortable sharing their employment status over the phone with a government employee. Another possible explanation is that the self-employed are counted in the household measure but not in the payroll one. Perhaps self-employment has been growing less rapidly than payroll employment. Furthermore, perhaps more people are working two or more part-time jobs.

We also prefer the payroll measure because it is the one used by the Bureau of Economic Analysis to calculate wages and salaries in personal income, which tends to be highly correlated with retail sales and personal consumption expenditures.

Consider the following: