Jobs – Déjà Vu. Black Friday.

Dan North | December 2022

I hope you’ll forgive me, I’ve used this opening once before. There was a well-known baseball player named Yogi Berra who was famous for his humorous, occasionally redundant, and sometimes self-contradictory remarks. This month’s employment report is a perfect fit for one of those remarks in that “It’s déjà vu all over again.” This month’s report is déjà vu all over again compared to last month’s report; “Jobs - nice headline, but...”

Let’s start with the nice headline. The economy created 263k non-farm payroll (NFP) jobs in November, much stronger than expectations of 200k. The unemployment rate was unchanged at 3.7%, just off the five-decade low of 3.5%. The NFP jobs and the unemployment rate are the two big headline numbers every month, so this report is being described as “strong,” or words along those lines, and you can’t argue with it.

But I can. And that’s because the headline numbers are the only unabashedly good numbers in the report, and there is plenty of other contradictory data around as well.

First, the prior two months were revised down -23k. Second, there were some unusual results in three industries. Retail lost 30k jobs, the third consecutive decline. Transportation and warehousing, which grew so many jobs leading us out of the pandemic (think Amazon), lost -15k jobs, the fourth consecutive decline. One would expect retail and transportation and warehousing to go up in November as the holidays approach. Professional and Business services, which is normally a significant contributor to the headline, gained only 6k, after a streak from January 2021 averaging 80k a month.

Jobs Created in Nov. 2022
It’s important to note that almost all of the jobs “created” over the past 31 months weren’t created at all, rather they were recovered from the massive losses of March and April 2020. The number of jobs in the economy only returned to pre-pandemic levels in June of this year, over two years after the losses. And now in the November report, there are now 5% more jobs in the economy than before the pandemic. However, leisure and hospitality jobs have yet to fully recover and are still only at 88% of the pre-pandemic level, meaning that there are 980k jobs less in that industry than beforehand.
Percentage of Jobs Recovered since pandemic
The labor force participation rate dropped another 0.1% m/m to 62.1%. This critical measure of the labor market, which is simply the percentage of the population working or looking for work, has stubbornly refused to budge between 62.4% and 62.1% all year. And it’s well below the pre-pandemic level of 63.4%
Labor Force Participation Rate
Finally, the pace of wage gains is clearly slowing. November’s 263k gain tied for the lowest of the post-pandemic era. The y/y growth rate of job gains has slowed dramatically from 4.7% in December ’21 to 3.3% now. And the current path of job growth is very similar to the average of all recessions since 1972. It will likely be negative by Q1 or Q2 of 2023.
Jobs created
Job Growth YoY
Jobs Gained or Lost before and after recession

Wage growth in the report resulted in a “good news is bad news” scenario. Wages gained 0.6% m/m, twice as fast as expectations of 0.3% m/m. That put the y/y rate at 5.1%, far above expectations of 4.6%. That’s good news for wage earners since it’s giving them a raise, but it’s bad news for the economy since it means the Fed will keep raising rates to fight inflation, taking the economy down with it. In fact earlier this week, Fed Chair Powell gave a speech where he said “…wages… the labor market holds the key to understanding inflation” and “nominal wages have been growing at a pace well above what would be consistent with 2% inflation over time”. Clearly, this data on wages will keep the Fed stomping on the brakes. We expect to see a 0.5% (or 50 basis point (bps)) hike this December 2022 followed by two 25 bps hikes in 2023.

In a separate labor market report called the Job Openings and Labor Turnover Survey (JOLTS), job openings fell again, and they have fallen 13% since the peak in March, or 21% annualized, while hirings are down 10% or 16% annualized. The critical gap between the two, which is a measure of the imbalance between supply and demand in the labor market, although still high enough to support wage growth, has fallen a rapid 17%, or 27% annualized since March. In addition, the number of job quits has fallen 10% since March, or 16% annualized. It would seem that the great resignation is fizzling out, as people no longer have that next new job lined up, or the confidence to leave the one they have and go get a new one.

Job Openings vs. Hirings
Job Quits

And there are more indicators of weakness in the labor market under the surface.

New job listings on the Indeed website have plummeted from 83% (of the February 2020 level) to 56.6% in five months. Initial jobless claims for unemployment benefits continue to rise. The outplacement firm Challenger, Gray, and Christmas released a startling report showing that layoffs rose by 42,992 in November which was the biggest increase in almost nine years (ex-Covid). It represented a huge 127% m/m jump and an eye-popping 417% y/y moon-shot. However, it should be noted that this data is somewhat volatile.

New Job Postings on Indeed
Initial Jobless Claims
In other news, housing prices continue to plummet, falling for the third straight month in September, the first time that has occurred in 10 years. The y/y rate has collapsed dramatically from 20.7% to 10.7% in just six months, but that’s still way above the 30-year average of 3.8%. Sometimes we look at a three-month trend which can give us an idea of how fast prices have been falling recently, and as shown in the second chart, they are already falling on an annualized basis of -0.7%. That’s worrisome because it’s an awfully rapid decline, suggesting a deflating bubble. The plus side of course is that makes houses more affordable, but prices still have a long way to fall to get back to more sustainable levels relative to wage growth. There are surely more declines coming.
Housing Prices YoY
Housing Prices
Housing vs hourly wage
Consumer confidence slipped in November. Most of the decline in the overall index (the blue line) since the rebound from Covid has been driven by future expectations (the green line). Over that same period, consumers’ assessment of the current situation (the brown line) has been more stable. When future expectations become much worse than the assessment of the presentation situation, it’s a sure sign of an impending recession. The blue line in the second chart is the difference between the future and the present and you can see every time it goes negative, it’s followed by a recession (the gray columns). It has been a perfect indicator for the past 55 years, ever since records have been kept, and it’s never given off a false signal. One way to interpret it is that when consumers get really worried about the future, they’re right.
Conference Board Consumer Confidence
Consumer Confidence
The Institute of Supply Management’s (ISM) manufacturing survey is carefully watched by economists because it has a very long history going back to 1948, and it does tend to lead the rest of the economy by a bit. In November, the index fell to 49.0, below the breakeven 50 level, indicating contraction. There are ten parts to the survey, and the blue line in the first chart represents employment, also now in negative territory – another indicator of weakness in the labor market. The second chart shows back orders and new orders well into negative territory. Perhaps that’s why employment is down - there is less work to do.
ISM Manufacturing Index
ISM Manufacturing Index
The 10yr-2yr yield curve recently set a 41-year record low and has been inverted for five months now. The 10yr-3mo curve recently set a 22-year low and has been inverted for a month. They are also perfect recession indicators.
Treasury Yield Curve

Q3 Gross Domestic Product (GDP) was revised up from 2.6% to 2.9%. While that’s a relatively big gain, the revisions themselves are less important than the final result. And the final result is a little soggy. Net exports drove the bus, contributing the full 2.9% to the headline. That’s not a bad thing necessarily, but it would have been better to see a more even spread of contributions. Investment fell -4.1% q/q annualized, and that followed a -5.0% decline in the previous quarter. Not surprisingly, the housing component of investment drove that bus, falling -26.8% q/q annualized, after having fallen -17.8, and -3.1% in the previous two quarters – right as the Fed started to drive up interest rates. The all-important consumption component only grew a scrawny 1.7% q/q annualized. But let’s remember, that’s all in the back mirror of July, August, and September.

The monthly Personal Income(PI) and Personal Consumption Expenditures (PCE) report give us a more granular look at the data going into the GDP report. Monthly Real PCE was up +0.5%, the most since January, but the y/y rate fell to 1.8% compared to 5.6% at the beginning of the year. Similarly real disposable personal income (DPI) gained +0.4% but the y/y remains in negative territory at -3.0% as benefits from all the fiscal support measures from the Covid era continue to dry up (to a mere 50% above what they were pre-Covid).

Looking at inflation in the report, the PCE price index rose +0.3% m/m, putting the y/y rate at 6.0%. Similarly, after stripping out volatile food and energy components, the core rate rose +0.2% m/m driving the y/y rate to 5.0%. The y/y core rate has stubbornly refused to move out of the 4.7% to 5.2% range over the past six months. Since it’s the Fed’s preferred inflation gauge it still gives the Fed the green light to carry on its aggressive rate hikes.

Core PCE

The spending data on the GDP and PCE reports end in September. They have nothing to say about Black Friday or holiday spending in November and December. As mentioned last week, reports about Black Friday spending are very noisy coming from different sources over different periods, etc. But here’s what we have.

Let’s start with online sales only.

1.    According to Adobe Analytics:

·         On Thanksgiving, shoppers spent $5.3 billion, 3% more than last year.

·         On Black Friday, consumers spent a record $9.12 billion shopping online, up 2.3% from last year.

·         On Cyber Monday consumers spent $11.3 billion or 5.8% more than last year.

·         For Cyber Week, Thanksgiving through Cyber Monday, sales reached $35.27 billion, 4% from last year.

2.    More online data from Salesforce, which includes commerce, marketing, and services showed:

·         Cyber Week sales of $68 billion, up 9% from last year. 

·         Globally, Cyber Week sales reached $281 billion, up only 2% from last year.

3.    The National Retail Federation said that over Cyber Week, 130.2 million shopped online, a rise of 2% over 2021.

4.    Shopify, an e-commerce platform for many direct-to-consumer start-ups, reported sales of $3.4 billion on Black Friday, a 21% over last year.

5.    MasterCard SpendingPulse reported e-commerce sales increased 14% over last year.

Got all that? 2% to 21% and everywhere in between. And that’s online sales which are only about 15% of all retail sales.


Now let’s look at brick-and-mortar stores. There is less data available here since presumably, it’s more difficult to get than online digital data.

1.    According to the National Retail Federation (NRF), 122.7 million U.S. consumers shopped in physical stores over Cyber Week, a 17% increase from last year.

2.    On the other hand, Sensormatic Solutions reported only a 2.9% in-store traffic increase.

3.    And MasterCard SpendingPulse reported that in-store sales on Friday were up 12% from last year.


Take your pick.


And from an article in Modern Retail we get some remarkable comments:

·         Melissa Burdick, co-founder and president of the e-commerce software platform Pacvue said that many people waited until Black Friday to shop in anticipation of great deals. Sometimes this looked like “cart squatting,” or loading items into an online shopping cart and then waiting to order until a fresh deal kicks in. “One winner this year was discounts,” she said. “If you don’t have a discount, people just aren’t buying.”

·         She also said “There’s also a shift toward people purchasing items that may be more practical and essential. For example, the top-clicked Black Friday deal on Amazon last year was a $200 laptop. This year, it was a $6 pair of leggings. “They’re buying needs not wants, and they’re waiting to buy needs on sale”.

·         Since 59% of shoppers on Cyber Monday used mobile devices, “Burdick from Pacvue said this trend suggests retailers ensure mobile pages are optimized and ready for viewing. That includes making sure promotions can be found easily and are displayed on mobile pages, as well as making sure manufacturers of products have included a variety of images and videos to go with the listings. The administrative part of that is making sure images are mobile-optimized, that you can see it and pinch it.”


That last bullet just showed me how retailing is changing so rapidly and how difficult it must be to keep up.

OK, that’s the numbers salad about holiday sales, and it looks like a salad that got spilled all over the floor. The takeaway for me is that most of those growth numbers after inflation are negative. Real consumption after inflation, which makes up 70% of all economic activity is slowing. People are seriously bargain shopping. In addition, consumers are now using more personal financing to make holiday purchases. Buy now, pay later (BNPL) orders jumped 78% the week of November 19 compared with the previous week, with revenues rising 81% over the same period. And according to Lending Club, 37% of Americans plan to use financing such as personal loans, credit cards, and BNPL this holiday season, up from 34% in 2021. Consumers’ buying power is getting eroded away. And that factoid about the laptop vs. the leggings may be the most important piece of information out of all of those reports. It feels shaky.

So let’s summarize. The labor market is slowing, housing is collapsing, consumers are worried about the future, manufacturing is hovering around neutral, and the Fed is going to keep raising rates, inverting the yield curve, and strangling the economy. And holiday sales feel shaky.

I think it’s consumers’ last hurrah going into 2023.

I know, I’m gloomy, but I don’t make this stuff up, and I think you should know about it. And let’s think about it this way. It’s a recession. Recessions come along every 10 years or so. It’s part of the business cycle. I’ve lived through several of them. And we will get through this one too, it will just feel bad in the process, like in this note.

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