Is the US labour market improving, or at least deteriorating less rapidly? Employees on non-farm payrolls dropped by 345,000 in May – lower than expected and down from an average of 612,000 over the prior three months. An alternative payrolls measure derived from the household survey, however, fell by 833,000, contributing to a further rise in the unemployment rate to 9.4%, a 26-year high.
The jury is out but two other indicators support the more hopeful message from the "official" payrolls series. First, a smoothed measure of employment taxes withheld at source (equivalent to UK PAYE) has edged higher since February – see first chart. Unsurprisingly, withheld taxes are a good coincident indicator of labour incomes and successfully delineated the last recession. (The numbers have been adjusted to take account of a cut in the withheld tax rate from April.)
Secondly, the outplacement firm Challenger, Gray & Christmas Inc's monthly tally of job-cut announcements has fallen steadily from a peak of 234,000 (seasonally adjusted) in January, reaching 111,000 in May – the lowest since September. The series correlates with weekly initial unemployment claims and suggests that claims will extend their recent small decline – second chart. This, in turn, would be consistent with an imminent peak in the unemployment rate.
