Why Gen Z may be skewing the employment data

Hiring stayed hot in May. The US added 272,000 jobs last month versus the estimated 180,000. The unemployment rate ticked higher to 4.0%, but average hourly earnings rose more than expected.

So what does this mean for the Federal Reserve?

Deutsche Bank Securities Senior US Economist Brett Ryan thinks it means the Fed won’t cut rates until December. “The bigger picture here is that there is really no change in trend from what you’ve seen over the last 12 months,” he says. “We think the Fed’s going to want to keep the door open for September, perhaps, but in our view, these data point to the Fed not cutting until December.”

Ryan also discusses the difference between what the household survey, which is the source of the unemployment rate, and the establishment survey, which is where the nonfarm payrolls number comes from, are showing.

Ryan says, “One of the things, though, that’s interesting in what’s weighing on the household survey growth rate is 20 to 24-year-olds.”

Find out why Ryan says that age cohort may be skewing the data in the video above.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Stephanie Mikulich.

Video Transcript

And turning to the key economic data driving the market today, the jobs report, the economy adding 272,000 jobs in May coming in above expectations.

As did the unemployment rate unexpectedly rising to 4%.

Joining us now is Deutsche Bank Senior us economist Brett Ryan Brett, thanks for joining us here.

Uh We were just talking with an earlier guest, the the juice, the reaction in this report really wasn’t felt in equity so much as a bond market.

Uh biggest jump up in the tenure in a couple of months overall.

What are you just making of the report?

Yeah, sure.

So, you know, as, as you noted, it was a, it was a solid report but, you know, the unemployment rate did tick up and there are a few specific reasons why.

But I think the bigger picture here is that um there’s really no change in trend from what you’ve seen over the last 12 months.

And I think going into the report, you had the bond market was really rallying and seizing on this idea of, you know, a step down in the labor market that was going to be evident in, in, in these data.

And you know, there really wasn’t a fundamental reason for it to be honest.

Um but you know, what did we get today?

You know, the headline 272 gain and private 229 gain, they were moderately above their six month averages of 255 and 202.

And the three sectors that have been driving non inform payroll gains, namely government hiring, which was up 43,000, leisure hospitality, 42,000 and private health and private education, health services, 86,000.

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It, you know, it’s the same story that it’s been for the last 12 months.

So I think it was more of a relief there that you’re not seeing a bigger slowdown and, you know, equities weren’t going to participate because that takes pretty much the fed, you know, a fed cut off the table in July.

Um You know, we think the fed is going to want to kind of keep the door open for September perhaps.

Um But in our view, these data point to the fed, not cutting until December.

Hey, Brent, can you help us understand the gap between the two surveys?

Whether this uh you know, I know it’s not unusual to have a gap was the gap between the two, the magnitude of the gap unusual between the establishment survey and the the household survey, right?

So the the household survey were, was obviously less positive with a 408,000 decline in employment with 100 and 57,000 increase in unemployment, which brought the unemployment rate up 4, 10 to 4%.

You know, that’s the highest since November 2021.

The issue is on a monthly basis.

Employment in the household and unemployment are very volatile.

They’re very volatile.

This is a survey of 60,000 people.

Um And so, you know, but the, the way to compare the these things is in the year over year growth rate because over time, the year, over year growth rate of household employment is going to generally track um that of of the establishment survey.

One of the things though, that’s interesting in the house.

What’s weighing on the household survey?

Uh growth rate is 20 to 24 year olds.

So employment for 20 to 24 year olds is down 6% year over year.

But employment for 25 to uh and above and particularly prime age is up 0.7 more healthy 0.7% that’s closer to what the establishment survey is showing.

And you know, it doesn’t explain all of the gap between the household and the establishment survey in terms of growth rates.

But another thing that may partly explain that gap is immigration.

The establishment survey is more likely to pick up um immigration impact.

Do people under 25?

Are they just less likely to answer the phone?

Also, Brett, like, how do you know I don’t know what the methodology is exactly for the household survey, but you have to imagine it’s gotten harder to even conduct these surveys.

Well, I think, you know, it’s, it’s not necessarily that more than, as we get further away from the pandemic.

Um, and, you know, people are returning to college and, and schools and graduate schools and, you know, during the pandemic when, um, you know, people delayed education, um, and you saw a big jump in in hiring, um among the younger age cohorts that are delayed colleges, I think it’s really more reflective of, you know, number one, it’s may and it’s always difficult to seasonally adjust around these age cohorts.

Um But two, you know, it’s a return to, to education and, and getting degrees.

Um, more than anything, I think with the way the FED is going to look at this is what prime age employment is a 7% 0.7% year every year in the household survey, the establishment survey growth rate is still solid at, you know, over 1% near 1.5%.

The income from the payroll proxy, which is our wages and jobs um is growing at 5.5% nominal.

All of this is supportive of continued spending, hiring, uh continued consumer spending.

Um and there’s really no smoking gun here that would say the Fed needs is to be in any urgency um to, to cut rates preemptively.

Um So, you know, it really becomes down to an inflation story.