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The current round of supply and demand in the U.S. job market is dislocated. After demand peaks, the repair of employment supply is still relatively lagging behind. Taking into account the performance of inflation and employment, the continuity of the Fed's rate hike cycle and the endpoint rate level may still be underestimated.

 

 

As a typical consumer economy in the United States, private consumption accounts for 70% of GDP. As an important leading indicator of consumption, the job market can directly reflect changes in economic sentiment. Historical retrospectives show that the labor market is in sync with or slightly behind the changes in the PMI new orders index. However, this time, the PMI new orders index continued to fall for about three quarters from its high point, but the number of new non-agricultural employment continued to be high, and the latest value exceeded 500,000.

 

Under the economic slowdown, the continuous bright performance of employment data is easy to be questioned as "false prosperity", and there may be more than 600 "zombie companies" and other contributions. Indeed, in the post-pandemic environment of low interest rates and quantitative easing, "zombie companies" continued to increase leverage and increase employment. According to Arbor Research, the number of jobs contributed by "zombie companies" may be about 1 million to 2 million. However, compared with ordinary enterprises, even if "zombie enterprises" occupy a considerable level of financing resources and employment, the output they can create may be extremely limited, which seems to easily lead to the deviation of the general economic situation and the employment situation.

 

Since the Fed started the rate hike cycle, the financing environment for "zombie companies" has become more unfavorable. Data shows that the credit spread of speculative grade ② credit bonds has once expanded from a low of around 300BP to more than 500BP, and the monthly issuance scale has dropped from a maximum of US$60 billion to less than US$2 billion. Affected by this, the contribution of "zombie enterprises" to employment may be relatively limited.

 

The current round of job market supply and demand is dislocated, and after demand peaks, the repair of job supply is still relatively lagging behind. The number of job openings published by the U.S. Bureau of Labor Statistics is a measure of a company's hiring needs. Given that labor market demand outpaces changes in supply, job vacancies generally tend to outpace nonfarm payrolls weakly, and historically this is roughly the same. Different from the past, the post-pandemic recruitment demand was released extremely quickly. The number of job vacancies was restored to above the pre-pandemic level in less than a year, and continued to exceed 10 million, but the number of jobs was restored relatively slowly.

 

The U.S. manufacturing and service industries accounted for about 14% and 72% of employment, respectively, closely following the changes in the manufacturing and service industries. Under the impact of the epidemic, the prosperity of the commodity manufacturing sector and the service sector has been dislocated. With the support of post-pandemic relief policies, the balance sheet of the U.S. residential sector has not been significantly impacted, and income and consumption power have increased instead of declining. The year-on-year growth rate of household commodity consumption has once exceeded 10%, supporting related employment restoration; the service industry has been suppressed, A drag on related employment fixes.

 

Compared with the early stage of the epidemic, with the gradual withdrawal of relief policies, the popularity of commodity consumption has shown a cooling trend, and the compound growth rate has dropped from a high of about 10% to about 4%. Against the background of the ebb of the epidemic, the service consumption that was suppressed in the past has begun to recover steadily, and the compound growth rate has returned to positive. Affected by this, the differences in the employment restoration process in the manufacturing and service industries have also begun to converge recently.

 

Looking ahead, the trend of rebalancing the US consumption structure is expected to continue. From the current point of view, the consumption of services such as transportation, medical care, entertainment, food and accommodation is still far from the trend before the epidemic, and the related employment gap is still large. The performance of the leisure, catering and other service industries in the third quarter can be used as an important observation object to test the recovery of consumption, and at the same time assist in the judgment of the resilience of the labor market and the pace of monetary policy tightening.

 

Considering the medium and long-term constraints on labor supply, the contradiction between employment supply and demand may continue, making it difficult to effectively alleviate wage inflation pressures. The factors restricting the US labor supply show long-term characteristics. For example, the employment intention of the elderly continues to be sluggish, and the growth of the immigrant labor force may also be extremely slow. Considering that the post-epidemic recovery of service consumption continues, related employment is still being repaired, and labor supply constraints persist, the pressure on wage increases may last longer than expected.

 

For the Fed, measures of employment and inflation take precedence over other economic indicators. Moreover, the signal recently revealed by Federal Reserve Chairman Powell is that monetary authorities are more tolerant of economic slowdowns and will continue to raise interest rates until inflation returns to near the target level. At present, the market expects the Fed to raise interest rates or stop in March 2023, and the terminal interest rate level is about 3.5%-3.75%. Taking into account the performance of inflation and employment, the continuity of the Fed's rate hike cycle and the endpoint rate level may still be underestimated.