Good payroll reports will probably continue until next spring

Good payroll reports will probably coninue until next spring

One of my continuing mantras over the years has been that spending leads hiring. It is simply demonstrable fact that, going back over 50 years, upward or downward changes in trend in consumer spending as revealed by retail sales, happen before similar changes in trend by jobs.

It turns out that there’s an even close correlation when we substitute aggregate payrolls (jobs x hours x pay) for the number of jobs alone. Here’s what that looks like over the past 50+ years. Real retail sales are in red, real aggregate payrolls in blue, YoY, and averaged quarterly to cut down on noise:

The only exceptions to the rule are the two oil shocks in the 1970s, the Fed-induced recession immediately thereafter in 1981, and the laste 1990s tech boom. Even in two of cases, there is a very slight lead time when we look monthly:

So now let’s zoom in on the last 5 years, measured monthly:

The surge in retail spending that started at the time of the hurricanes last year and lasted through this past spring has not completely worked its way through the system. Thus I anticipate that total payrolls in real terms will continue to increase at a good clip for the next several months at least. If I am right that the last couple of months show the beginning of a slowdown in sales, that should become apparent in payrolls by about next spring.