Cracks in America’s booming job market are starting to appear, warned Canada’s oldest bank. BMO Capital Markets outlined a divergence between US payroll and household-survey employment. The bank warns this is the largest divergence on record, outside of the pandemic—indicating the market might be weaker than it appears.
US Payroll and Household Employment
The US uses two measures of employment — payrolls and household-surveys. Payrolls are taken at the business end, and have a more rigid definition of employment. Household surveys are typically higher than the payroll surveys due to a more broad definition, though people with multiple payroll jobs are only counted once.
They’re both important to get a whole picture of employment, with the latter used for the unemployment rate calculations. But since they both use different sources and questions, they occasionally diverge and leave mixed signals. This is one of those times.
“Buried behind the string of strong U.S. payroll headlines in recent months, including the 263k print for November, is flagging household-survey employment,” said Robert Kavcic, senior economist at BMO.
US Employment May Be Weaker Than It Looks
Over the past six months, payrolls have been surging higher while household employment has come in relatively flat. Kavcic’s calculations show payrolls climbed an average of 320k per month, while household employment was virtually flat.
“Outside of the pandemic shock, this is the largest gap in six-month employment performance on record,” he said.
Adding, “there doesn’t appear to be one single issue. Multiple job holders are on the rise (counted twice in payrolls but once in the household survey); full-time employment has fallen while part-time has held up (explains the downdraft in hours momentum); the response rate in the payrolls survey in November was historically low; and there might be quirks in the birth death model used by the BLS.”
Divergences between the two models do happen, but usually right before a period of volatility. “All this to say, underlying conditions might not be as strong as the payroll report alone suggests… keep an eye out,” warns Kavcic.