Sales Lead Employment: Real Aggregate Payrolls Update

The drought in new data ends tomorrow with consumer inflation. In preparation, let’s take a look at real aggregate payrolls.

These increased by 0.2% in December, one of the lower readings in the past 2 years:

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On a YoY basis, aggregate nonsupervisory payrolls increased by 5.8%, compared with consumer inflation in November, which increased by 3.1%:

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Recall that over the long term, real aggregate payrolls YoY have been an excellent coincident marker of recession:

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They have typically made a rounded peak roughly 6 months before its onset. With real aggregate payrolls being up over 2.5% in November, and at a new record, the expansion has remained on solid footing.

Yesterday I posted another installment of “consumption leads jobs,” so I decided to take a look comparing real retail sales (blue in the graphs below) with real aggregate payrolls. I’ve split it up into three historical segments for better visibility.

Here is 1965 through 1993:

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Here is 1994 through 2019:

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And here is the post-pandemic record:

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As usual, real retail sales are somewhat noisy, and the relationship is not perfect. But in general, real sales have tended to lead real aggregate payrolls by 1-2 months, especially as a smoothed average. Because of the noise, I don’t think we can use the former to forecast the latter, but because each measure independently has been generally reliable, watching them together will be particularly helpful.

I will update again tomorrow or Friday after the inflation report.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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