Latest / Best of Business / Brendan Larsen: Milford Asset Management expert on the US labour market softening

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Brendan Larsen: Milford Asset Management expert on the US labour market softening · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk st B.
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  Speaker 2: After years of an historically strong US labor market, there
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  Speaker 2: are now growing signs of softening beneath the service Brandan
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  Speaker 2: Larson from Milford Asset Management is with us afternoon, Brandon,
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  Speaker 2: Good evening. Right, let's start a little bit with some
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  Speaker 2: background before we dive into what's actually changed here.
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  Speaker 1: Yeah.
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  Speaker 3: Sure, So, I guess over recent years, the US labor
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  Speaker 3: market has been extremely strong. Coming out of COVID, consumers
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  Speaker 3: had a lot of money and a lot of pent
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  Speaker 3: up demand for goods and then eventually services. So this
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  Speaker 3: resulted in a surgeon consumption, which I guess meant that
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  Speaker 3: business has required more and more workers. I guess the
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  Speaker 3: best reflection of this is really looking at demand indicators.
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  Speaker 3: So the Job Openings and Labor Turnover Survey referred to
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  Speaker 3: as JOLTS as probably the best one to look at,
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  Speaker 3: and that surged to a high of twelve million job
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  Speaker 3: openings in twenty twenty two. So for perspective, that implies
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  Speaker 3: two job openings every one unemployed person. The wild demand surged. Initially,
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  Speaker 3: supply of labor was subdued participation rates were low after COVID,
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  Speaker 3: immigration was weak with travel, and so that meant that
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  Speaker 3: the demand massively ours striped supply, and the unemployment rate
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  Speaker 3: quickly declined from that thirteen percent peak in twenty twenty
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  Speaker 3: to a trough of three and a half percent in
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  Speaker 3: twenty twenty two.
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  Speaker 2: Yeah, the supply picture changed quite a lot as the
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  Speaker 2: country's reopened after COVID.
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  Speaker 1: Ay.
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  Speaker 3: Yeah, that's right here. The immigration surged in the US
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  Speaker 3: actually after twenty twenty two. So the Biden government in
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  Speaker 3: particular were really keen to get migrants into the US
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  Speaker 3: to support growth. So we saw immigration reach a peak
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  Speaker 3: of three and a half million in twenty twenty three.
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  Speaker 3: So that's three and a half times the average rate
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  Speaker 3: pre pandemic. And so that did two things really for
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  Speaker 3: the US economy. One that added significant supply of labor
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  Speaker 3: to a very tight jobs market, and two, it meant
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  Speaker 3: there were more people in the US consuming goods and services,
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  Speaker 3: which obviously boosted GDP like the Biden government wanted.
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  Speaker 2: And so how President Trump's focus on reducing immigration changing
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  Speaker 2: this up.
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  Speaker 3: Yeah, so we're actually seeing that immigration crackdown already show
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  Speaker 3: up in the data. So net immigration is annualizing at
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  Speaker 3: a pace of about five hundred thousand at the moment,
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  Speaker 3: and so that's obviously done materially from that three and
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  Speaker 3: a half million level of twenty twenty three, and half
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  Speaker 3: the pace of the pre pandemic trend. But this lower
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  Speaker 3: immigration is also masking some softness in the demand side
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  Speaker 3: of the US labor market. So overnight we got updated
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  Speaker 3: JOLTS data that showed vacancy's decline to seven point four million,
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  Speaker 3: so that ratio is now shifted to one job opening
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  Speaker 3: for every one unemployed person, and the trend in recent
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  Speaker 3: payroll data is also declined. But with this huge decline
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  Speaker 3: in immigration, we're seeing really the opposite effect of what
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  Speaker 3: occurred in twenty twenty two, so this removal of supply
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  Speaker 3: of laborer from the market. So that means despite falling
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  Speaker 3: demand for labor, supply is falling and therefore the unemployment
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  Speaker 3: rate isn't rising as much as one would expect, and
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  Speaker 3: hence this masking of some of this weakness. We actually
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  Speaker 3: get new data later this week on payrolls, and that's
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  Speaker 3: really quite important for a direction of monetary policy in
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  Speaker 3: the US.
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  Speaker 2: And how does it compare if you have a look
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  Speaker 2: at what's going on with the New Zealand labor market.
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  Speaker 3: Look, as we know, the New Zealand economy remains quite
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  Speaker 3: weak and this is also reflected in the labor market.
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  Speaker 3: So the unemployment rate in New Zealand has risen from
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  Speaker 3: a low of about three point two percent in twenty
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  Speaker 3: twenty two to five point one percent in Q one
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  Speaker 3: this year. On the demand side, job advertisements had stabilized,
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  Speaker 3: but data this week actually confirmed a renewed down trend.
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  Speaker 3: There are actually some similarities as well between the New
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  Speaker 3: Zealand and US labor markets, so supply of labor is
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  Speaker 3: also reducing in New Zealand, which is partially balancing that
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  Speaker 3: decline and demand. For example, the unemployment rate in Q
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  Speaker 3: one this year would have actually been higher if it
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  Speaker 3: wasn't for the decline of participation, and so I think
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  Speaker 3: that really reflects two important things. One, job seekers are
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  Speaker 3: opting out of the market given difficulties finding work, and
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  Speaker 3: two immigration is now a lot lower in New Zealand
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  Speaker 3: than what it had been. The good news is that
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  Speaker 3: the further weakening in the labor market and a slow
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  Speaker 3: economic recovery and an inflation data that is within the
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  Speaker 3: band does mean that we think there is continued scope
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  Speaker 3: for more rec cuts from the IBNZ.
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  Speaker 2: Excellent's what we want to Hear Brandan, Thank you, Brendan
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  Speaker 2: Lars and Milford Asset Management.
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