Growth in non-farm payrolls peaks mid-cycle

After the latest jobs report had come out, US President Donald Trump responded on Twitter by touting the decline in unemployment amongst African Americans.

Predictably, this led many on Twitter to note that job growth under Trump in 2017 was actually lower than job growth under Obama in 2016. In fact, job growth in 2017 was the weakest year of job growth since 2010 when it was still unclear how well the US could recover from the Great Financial Crisis. That’s to be expected though.

You don’t get the same level of job growth after eight years of an economic upturn as you do after one. And this is borne out by the statistics. Take a look at the rolling growth numbers. This is a data series that goes all the way back to 1939.

 Source: St. Louis Federal Reserve

In every single business cycle in the last 80 years, job growth has peaked mid-cycle.

Doesn’t this make intuitive sense though? Companies respond haltingly to recovery, just as everyone else does. At some point, when it is clear the upturn is for real and has legs, hiring ramps up to a high as companies make up for lost time. Eventually though, as the labor market tightens, the pace of job growth declines. It doesn’t fall off a cliff and throw us into recession, the pace of job growth merely recedes. And again, if you look at the data, we’re talking two or three years before the cycle ends — often longer.

This cycle is no different. And to wit, Donald Trump has to be careful for touting the jobs numbers because we should expect the pace of growth in employment to slow further still.

I would make two observations though. First, the depth of job loss in this cycle was unusual by recent standards. You have to go back nearly 70 years to 1949 to see as much of a loss of employment in percentage terms.

Second, cycle volatility has gone down a lot as time has progressed. Both job growth and job loss have moderated over time, with the last cycle’s loss as the glaring exception.

February 2015 marks the peak in job growth for this cycle and it is likely to remain the peak for the cycle. Given that this was 35 months ago, it makes sense to think of 2018 as very late in the business cycle.

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