Brendan Larsen: Milford Asset Management expert on the US labour market softening

After years of a historically strong labour market, there are now growing signs of softening beneath the surface.

Work opportunities in the US are dwindling amid ongoing economic uncertainty, with the Trump administration's policies contributing to high unemployment figures.

Milford Asset Management expert Brendan Larsen explains further.

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Episode Transcript

Speaker 1 (00:00):
After years of an historically strong US labor market, there
are now growing signs of softening beneath the service branded
Larson from Milfit Asset Management is with US Afternoon branded
Good Evening. Right, let's start a little bit with some
background before we dive into what's actually changed here.

Speaker 2 (00:15):
Yeah. Sure, So, I guess over recent years, the US
labor market has been extremely strong. Coming out of COVID,
consumers had a lot of money and a lot of
pent up demand for goods and then eventually services. So
this resulted in a surgeon consumption, which I guess meant
that business has required more and more workers. I guess
the best reflection of this is really looking at demand indicators.

(00:38):
So the Job Openings and Labor Turnover Survey referred to
as JOLTS is probably the best one to look at,
and that surged to a high of twelve million job
openings in twenty twenty two. So for perspective, that implies
two job openings for every one unemployed person. So while
demand surged initially, supply of labor was subdued. Participation rates

(00:58):
were low after COVID Immigration week with travel, and so
that meant that the demand massively ours drips supply, and
the unemployment rate quickly declined from that thirteen percent peak
in twenty twenty to a trough of three and a
half percent in twenty twenty two.

Speaker 1 (01:12):
Yeah, the supply picture changed quite a lot as the
country's reopened after COVID Day.

Speaker 2 (01:17):
Yeah, that's right here. The immigration surged in the US
actually after twenty twenty two. So the Biden government in
particular were really keen to get migrants into the US
to support growth. So we saw immigration reach a peak
of three and a half million in twenty twenty three.
So that's three and a half times the average rate
pre pandemic. And so that did two things really for

(01:37):
the US economy. One that added significant supply of labor
to a very tight jobs market, and two it meant
there were more people in the US consuming goods and services,
which obviously boosted GDP like the Biden government wanted.

Speaker 1 (01:51):
And so how was President Trump's focus on reducing immigration
changing this up?

Speaker 2 (01:55):
Yeah, so we're actually seeing that immigration crackdown already show
up in the data. So immigration is annualizing at a
pace of about five hundred thousand at the moment, and
so that's obviously done materially from that three and a
half million level of twenty twenty three, and half the
pace of the pre pandemic trend. But this lower immigration
is also masking some softness in the demand side of

(02:16):
the US labor market. So overnight we got updated Joltz
data that showed vacancy's decline to seven point four million,
so that ratio is now shifted to one job opening
for every one unemployed person, and the trend in recent
payroll data is also declined. But with this huge decline
in immigration, we're seeing really the opposite effect of what
occurred in twenty twenty two, so this removal of supply

(02:39):
of laborer from the market. So that means despite falling
demand for labor, supply is falling and therefore the unemployment
rate isn't rising as much as one would expect, and
hence this masking of some of this weakness. We actually
get new data later this week on payrolls, and that's
really quite important for a direction of monetary policy in
the US.

Speaker 1 (02:59):
And how does it compare if you have a look
at what's going on with the New Zealand labor market.

Speaker 2 (03:03):
Look, as we know, the New Zealand economy remains quite weak,
and this is also reflected in the labor market. So
the unemployment rate in New Zealand has risen from a
low of about three point two percent in twenty twenty
two to five point one percent in Q one this year.
On the demand side, job advertisements had stabilized, but data
this week actually confirmed a renewed downtrend. There are actually

(03:27):
some similarities as well between the New Zealand and US
labor markets, so supply of labor is also reducing in
New Zealand, which is partially balancing that decline and demand.
For example, the unemployment rate in Q one this year
would have actually been higher if it wasn't for the
decline of participation, and so I think that really reflects
two important things. One job seekers are opting out of

(03:49):
the market given difficulties finding work, and two immigration is
now a lot lower in New Zealand than what it
had been. The good news is that the further weakening
in the labor market, slow economic recovery, and inflation data
that is within the band does mean that we think
there is continued scope for more red cuts from the
IBNZ excellent.

Speaker 1 (04:08):
What we want to hear brandan thank you Brendan Lars
and Milford Asset Management. For more from Hither Duplessy Allen
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