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Speaker 1: After years of an historically strong US labor market, there

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Speaker 1: are now growing signs of softening beneath the service branded

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Speaker 1: Larson from Milfit Asset Management is with US Afternoon branded

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Speaker 1: Good Evening. Right, let's start a little bit with some

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Speaker 1: background before we dive into what's actually changed here.

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Speaker 2: Yeah. Sure, So, I guess over recent years, the US

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Speaker 2: labor market has been extremely strong. Coming out of COVID,

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Speaker 2: consumers had a lot of money and a lot of

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Speaker 2: pent up demand for goods and then eventually services. So

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Speaker 2: this resulted in a surgeon consumption, which I guess meant

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Speaker 2: that business has required more and more workers. I guess

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Speaker 2: the best reflection of this is really looking at demand indicators.

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Speaker 2: So the Job Openings and Labor Turnover Survey referred to

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Speaker 2: as JOLTS is probably the best one to look at,

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Speaker 2: and that surged to a high of twelve million job

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Speaker 2: openings in twenty twenty two. So for perspective, that implies

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Speaker 2: two job openings for every one unemployed person. So while

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Speaker 2: demand surged initially, supply of labor was subdued. Participation rates

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Speaker 2: were low after COVID Immigration week with travel, and so

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Speaker 2: that meant that the demand massively ours drips supply, and

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Speaker 2: the unemployment rate quickly declined from that thirteen percent peak

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Speaker 2: in twenty twenty to a trough of three and a

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Speaker 2: half percent in twenty twenty two.

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Speaker 1: Yeah, the supply picture changed quite a lot as the

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Speaker 1: country's reopened after COVID Day.

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Speaker 2: Yeah, that's right here. The immigration surged in the US

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Speaker 2: actually after twenty twenty two. So the Biden government in

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Speaker 2: particular were really keen to get migrants into the US

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Speaker 2: to support growth. So we saw immigration reach a peak

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Speaker 2: of three and a half million in twenty twenty three.

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Speaker 2: So that's three and a half times the average rate

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Speaker 2: pre pandemic. And so that did two things really for

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Speaker 2: the US economy. One that added significant supply of labor

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Speaker 2: to a very tight jobs market, and two it meant

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Speaker 2: there were more people in the US consuming goods and services,

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Speaker 2: which obviously boosted GDP like the Biden government wanted.

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Speaker 1: And so how was President Trump's focus on reducing immigration

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Speaker 1: changing this up?

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Speaker 2: Yeah, so we're actually seeing that immigration crackdown already show

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Speaker 2: up in the data. So immigration is annualizing at a

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Speaker 2: pace of about five hundred thousand at the moment, and

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Speaker 2: so that's obviously done materially from that three and a

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Speaker 2: half million level of twenty twenty three, and half the

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Speaker 2: pace of the pre pandemic trend. But this lower immigration

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Speaker 2: is also masking some softness in the demand side of

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Speaker 2: the US labor market. So overnight we got updated Joltz

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Speaker 2: data that showed vacancy's decline to seven point four million,

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Speaker 2: so that ratio is now shifted to one job opening

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Speaker 2: for every one unemployed person, and the trend in recent

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Speaker 2: payroll data is also declined. But with this huge decline

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Speaker 2: in immigration, we're seeing really the opposite effect of what

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Speaker 2: occurred in twenty twenty two, so this removal of supply

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Speaker 2: of laborer from the market. So that means despite falling

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Speaker 2: demand for labor, supply is falling and therefore the unemployment

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Speaker 2: rate isn't rising as much as one would expect, and

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Speaker 2: hence this masking of some of this weakness. We actually

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Speaker 2: get new data later this week on payrolls, and that's

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Speaker 2: really quite important for a direction of monetary policy in

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Speaker 2: the US.

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Speaker 1: And how does it compare if you have a look

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Speaker 1: at what's going on with the New Zealand labor market.

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Speaker 2: Look, as we know, the New Zealand economy remains quite weak,

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Speaker 2: and this is also reflected in the labor market. So

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Speaker 2: the unemployment rate in New Zealand has risen from a

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Speaker 2: low of about three point two percent in twenty twenty

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Speaker 2: two to five point one percent in Q one this year.

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Speaker 2: On the demand side, job advertisements had stabilized, but data

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Speaker 2: this week actually confirmed a renewed downtrend. There are actually

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Speaker 2: some similarities as well between the New Zealand and US

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Speaker 2: labor markets, so supply of labor is also reducing in

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Speaker 2: New Zealand, which is partially balancing that decline and demand.

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Speaker 2: For example, the unemployment rate in Q one this year

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Speaker 2: would have actually been higher if it wasn't for the

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Speaker 2: decline of participation, and so I think that really reflects

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Speaker 2: two important things. One job seekers are opting out of

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Speaker 2: the market given difficulties finding work, and two immigration is

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Speaker 2: now a lot lower in New Zealand than what it

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Speaker 2: had been. The good news is that the further weakening

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Speaker 2: in the labor market, slow economic recovery, and inflation data

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Speaker 2: that is within the band does mean that we think

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Speaker 2: there is continued scope for more red cuts from the

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Speaker 2: IBNZ excellent.

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Speaker 1: What we want to hear brandan thank you Brendan Lars

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Speaker 1: and Milford Asset Management. For more from Hither Duplessy Allen

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