There has been lots of chatter recently about the strength of the U.S. employment picture. The early March knockout employment report, at +295K net new jobs, seems to have increased the discussion about whether the employment picture is peaking.
Is it? How much longer can the labor market keep accelerating?
(As a note, acceleration means that the rate of the year-over-year growth rate continues to increase.)
The Month-over-Month Employment Picture
As background, here’s a look at the month-over-month employment picture. Since bottoming in the fourth quarter of 2013, the U.S. labor market has been on a tear, gaining more than 200K jobs since February 2014.
The strongest month over the period occurred in November 2014 at an amazing 423K. The weakest month was in August 2014 at +213K.
What’s clear when looking at the month-over-month figures is that U.S. job market growth has experienced a marked improvement from the lackluster growth years of 2012 and 2013.
The Year-over-Year Look
Although Wall Street analysts tend to prefer the month-over-month growth figure as their measure of strength in the U.S. jobs market, many economists opt for a somewhat less tangible figure, year-over-year growth.
Here’s a look at the year-over-year growth in U.S. jobs since 1971. Notice any behavior that is close to today’s labor market picture?
Two prior experiences stand out when comparing with what the U.S. labor market has done since February 2014. The experiences are 1986 to 1988 and 1996 to 1998.
The Acceleration Period
First some explanation.
The gray area in each chart is the mid-cycle acceleration period. It is the time frame in which the year-over-year growth in employment accelerated consistently.
The yellow box represents the period after which the acceleration ended, which here is called the “cruising speed” period.
As shown, the economy experienced a mid-cycle uptick from June 1986 to March 1988, a total of 21 months. A similar mid-cycle uptick occurred from January 1996 to January 1998, a total of 24 months. The current mid-cycle uptick has lasted 12 months.
So, if the past two experiences are any indication, the current mid-cycle strength has another 9 to 12 months of acceleration left.
Cruising Speed
Following the acceleration period is cruising speed. As shown in yellow, the time spent in cruising speed can be somewhat short to relatively long.
After reaching cruising speed in 1988, the economy stayed there for about 11 months. The experience after peaking in 1998 lasted 28 months.
Conclusion
Overall, although there’s lots of chatter about a potentially peaking U.S. employment picture. If one looks at the past two similar experiences in the U.S. labor market, the chatter appears to be premature. There’s lots of time for the labor market to continue to impress.
The strength or boom period has another 9 to 12 months to go, while the cruising speed has another 11 to 28 months to go.
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