The Labor Market’s Deceptive Signals: Why the Numbers Don’t Add Up

Beneath the surface of rosy employment stats, something's rotten. The labor market's flashing contradictory signs—hiring surges but productivity tanks. Here's why you shouldn't trust the headline numbers.

Wage Growth Mirage

Salaries climb while real purchasing power evaporates—thanks, inflation. Employers throw money at warm bodies, but quality hires? Scarcer than a Wall Streeter admitting fault.

The Participation Paradox

Unemployment dips as millions stay home. Retirements? Sure. But also a generation opting out of broken systems—gig work pays better than middle-management drudgery.

Productivity Black Hole

More jobs, less output. Companies hoard staff like dragons with gold, terrified they won't find replacements. Efficiency be damned—just keep the seats filled.

Next time some suit cites 'strong labor data,' ask where the value's created. Probably in some hedge fund's algo trading the stats against itself.

The key vector of what is driving this topline strength in the labor market is a decreasing labor force. This is due to plummeting immigration ever since TRUMP took office. 

Looking at land border crossings, we can see these have cratered.

One year ago, we saw this dynamic in reverse:

• Huge levels of immigration under the Biden administration grew the labor force, which mechanically increased the unemployment rate, since it took time for those new entrants to get a job. And, in the meantime, those new entrants are considered unemployed in BLS data.
• This was what caused the false-positive signal of the Sahm rule that led to the Fed cutting 50bps in quick order. 

Putting it together: In the same way that immigration was causing a mechanically weak labor market last September, we now see a mechanically strong labor market. 

This dynamic shrouds what’s happening deeper in the data. 

Private payrolls came in at 74k, below expectations of 105k. The reason for the significant upside surprise came from government payrolls, which surged to 73k — up from 7k the previous month:

Looking at the industries that drove payroll growth, education and health services continue to bleed lower, which is notable, as these have been the primary driver of payroll growth in recent years.

This delicate balance in the labor market is mostly felt by those who are currently unemployed and finding it extremely difficult to get a new job. 

Continuing jobless claims are grinding higher every week amid a labor market that punishes job seekers. 

What’s interesting is that the economy isn’t rolling over quite enough to trigger any meaningful layoff cycle. And so, we see that initial jobless claims continue to chop around aimlessly:

Putting this all together, we have a labor market that has some valid issues — but is not bad enough to trigger any sort of meaningful policy response. 

It looks increasingly likely that the Fed will continue to sit on its hands and not make any meaningful MOVE in either direction.

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