US Labour still constrained

The April payrolls report was a historic surprise to the downside, and in our view evidence of supply constraints–be they supplemental federal unemployment benefits, residual Covid-19 fears, childcare demands, or pulled-forward retirements–materially limiting job gains. While our view is that these constraints will prove to be temporary, some evidence is emerging that they could continue to bite in the near term. Though hard data for May–and labor supply constraints more generally-remains somewhat sparse, we note a few points that appear to signal the continuation of this phenomenon. First, while initial claims have continued their sustained fall, regular and PEUC continuing claims have effectively flat-lined (through the week ending 9 May for the former, the week earlier the latter; PUA continuing claims have conversely notched downward). The fall in initial claims points to a reduction in layoffs, but the steadiness of regular continuing claims is reflective of April and indicative of people continuing to remain on the sidelines.

Second, we note that the release of the Dallas Fed’s real-time population survey for May showed its employment rate turn down even more sharply than it did in April. Though the Dallas Fed’s RPS has a limited history (it began in May 2020) and mixed set of results, it performed relatively well in capturing the sluggish April payrolls outturn. Read literally, as imple predictive model from this alternative data suggests a contraction of -195k jobs inMay!