US Payroll Data Still Implies World’s Largest Economy Faces Recession In 2024

Source: Bloomberg
Source: Bloomberg

Should current trends in US employment data continue, at their current pace, it still implies a US recession will start in 2024.

'Knee jerk' reactions by traders to December's 216,000 rise in non-farm payrolls, suggesting the figures are 'robust' and 'better than expected' are, in our opinion, wide off the mark. So too are economists' forecasts that a US recession will be avoided this year[i]. Rather, the figures are entirely consistent with the trend we identified in June last year pointing to a recession in 2024. Readers will recall, in June 2023, many economists incorrectly suggested a US recession would start last year. We believe most economists are wrong again in forecasting the US will avoid a recession.

AKRO's preferred method of looking at the economic performance of the world's largest economy is to look at trends in US payroll data, in particular non-farm payrolls, which excludes the seasonal impact of agricultural employment. This broad-based economic indicator, released on a monthly basis, often better reflects economic reality than the official GDP data, which released quarterly, with a lag, and often subject to large revisions.

The chart shows both the total number of non-agricultural employees (top) and the 12-month rate of change in that figure (bottom). Traditionally, when the year-on-year rate of employment growth drops below 1%, it has been an accurate indicator of recessionary conditions. If current trends persist, the US will fall into recession this year.

Paradoxically, a mild recession, if associated with deflationary pressures and a drop in interest rates, could provide a powerful boost to both bonds and equities.

Jeremy Monk
Investment Director,
AKRO investiční společnost, a.s.

This article does not constitute investment advice or a recommendation to buy or sell any security.

[i]  Bloomberg Survey as at 05/1/2024: Q1 2024 real GDP +2.2%, Q2 2024 real GDP +1.7%, Q3 2024 real GDP +0.7%, Q4 2024 real GDP +0.8%