7 minute read
The Hidden Weakness in U.S. Jobs: Too Few Industries Are Carrying the Load
- Job growth is becoming increasingly concentrated in just a few sectors like healthcare, education, and government - leaving the labor market more vulnerable to shocks.
- When job creation narrows like this, it has historically signaled an economic downturn - yet today, GDP growth remains strong, making this trend even more concerning.
What you need to know: According to Bloomberg, job growth in the U.S. has grown increasingly narrow as only a handful of sectors – such as U.S. Healthcare, Education, and Government – carry the payrolls1.
Why it matters: A narrow job market can signal economic imbalances - making the labor market more vulnerable to shocks – and mask overall labor weakness beyond the headline numbers. If job growth leans too heavily on government and a couple of service industries, it could signal sluggish job creation, wage stagnation elsewhere, and long-term risks to economic stability.
Now the Deep Dive: A narrow job market can signal economic imbalances - making the labor market more vulnerable to shocks – and mask overall labor weakness beyond the headline numbers. If job growth leans too heavily on government and a couple of service industries, it could signal sluggish job creation, wage stagnation elsewhere, and long-term risks to economic stability.
Now the Deep Dive: While headline payroll numbers look solid, a deeper look reveals cracks beneath the surface. Job growth is increasingly concentrated in just a few industries - a warning sign for the broader economy.
Historically, when job growth narrows like this, we’re often entering a downturn.
But today, employment remains high, and GDP growth has been solid - 3.2% in 2022 and 2.5% in 2023.
Yet, compared to pre-pandemic norms, payroll gains are actually underperforming.
And this raises a critical concern. . .
To highlight this, take a look at Employ America’s Payroll Growth Diffusion Index (chart below).
- The Payroll Growth Diffusion Index tracks how broadly job gains are spread across industries.
- A high reading (near 80%) signals widespread hiring.
- A low reading (30-40%) means job gains are shrinking into fewer sectors -often a red flag for economic stress.
Thus, the index highlights two key risks:
- Job creation is increasingly reliant on just a few industries - namely healthcare, education, and government.
- A narrower job market increases vulnerability - if these key sectors slow down, the entire labor market could weaken.
As always, context matters when evaluating big data points. Something to keep in mind.
Figure 1: Bloomberg, February 2025
The Wealth Divide: Why the Top 10% Are Driving U.S. Consumer Spending
- Nearly half of U.S. consumer spending now comes from the top 10% of earners - driven by rising asset prices, while the bottom 90% struggle to keep up.
- With the bottom 90% struggling or relying on debt to spend, the economy’s foundation looks increasingly fragile if asset prices take a hit.
Why it matters: This growing divide suggests that economic growth is increasingly reliant on asset-driven wealth rather than broad-based income gains. If stock or real estate markets falter, the resulting decline in high-income spending could expose the fragility of this consumption-driven economy - leading to slower growth and greater financial instability.
Now the Deep Dive: I found this WSJ article interesting because it highlights a growing issue in the U.S. (and global) economy.
Of course, high earners always spend more on purchases. That’s nothing new. But lately, the gap between their splurging and everyone else’s spending has grown wider than ever.
Or said another way, it’s not that the top 10% are spending more - it’s that the bottom 90% aren’t or can’t without piling on debt. That’s where things get worrying.
So, what’s fueling the surge in upper-income spending? It appears to be soaring asset prices. And who statistically owns more assets? The wealthy.
After the pandemic-era stimulus from the government and the Fed, asset values soared:
- The bottom 80% saw their net worth grow by $14 trillion due to excess liquidity flooding the system.
- But the top 20% - already well-off - piled into assets and saw their wealth jump by $35 trillion (2.5x as much as everyone else).
Such asset-fueled spending by a sliver of the U.S. population reminds me of economist John Kenneth Galbraith’s famous “Bezzle” concept. (He also wrote The Great Crash of 1929 - one of my favorite financial history books.)
- The bezzle is a financial illusion - the gap between perceived wealth and actual value.
- For example: you check your investment account and see huge paper gains. Feeling richer, you splurge on a trip or a new car. But if those prices are inflated or unsustainable, that wealth isn’t real - it’s temporary. When the bubble bursts, that “extra” wealth vanishes, often triggering economic turmoil - especially if you borrowed against it.
- Some economies even rely on this illusion - making the crash even worse when reality sets in (think Argentina in the early 2000s or Greece before 2012).
But what’s most troubling me? Two things:
- Is this spending surge more artificial than real, driven by surging asset markets? It appears so.
- The top 10% are not the true consumption class. The bottom 90% is. A rich person can only buy so much toilet paper, groceries, etc. - consumption at scale comes from millions.
And here’s the issue: 35% of U.S. GDP now relies on less than 10% of households. Thus, if anything happens to that group - whether bad luck or sinking asset prices - the entire economy could take a major hit.
“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth... to provide men with buying power.... Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth... The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”
More on this in an upcoming Morning Pour. But for now, it's something to monitor.
Figure 2: Bloomberg, February 2025
Oil Markets Are Slipping Away - And OPEC Is Stuck
- OPEC+ is caught between cutting output to support prices or boosting supply and losing market share - either way, they’re losing control.
- The U.S. has been refilling its oil reserves, unintentionally propping up prices - ironically helping the very cartel it sought to undercut.
What you need to know: Saudi Arabia and its OPEC allies - including Russia (aka OPEC+) - are set to start rolling back years of heavy production cuts starting in April, adding oil supply into the market4.
Why this matters: The oil cartel is currently holding back 5.85 million barrels per day - about 5.7% of global demand - after cuts since 2022 to prop up oil prices. Increasing production will likely drive prices lower, keeping them even further from Saudi Arabia’s unofficial $100 per barrel target (currently around ~$70 per barrel). This is good news for consumers, but bad news for producers facing tighter margins.
Now the Deep Dive: OPEC+ (aka the oil-producing cartel led by Saudi Arabia) is in a tough spot.
Do they start easing production caps despite weak crude supply and demand? Or do they hold off (again) to keep prices stable - risking a further loss of control over the market?
As I wrote to you last year in The Perpetual Game: Saudi Arabia, OPEC, And Oil Markets Are Stuck In A Prisoner’s Dilemma - OPEC is fighting a losing war, and oil prices were likely to drift lower regardless.
- OPEC’s production cuts backfired - leading to lost market share to U.S., Brazilian, and Canadian producers. Now, the longer they delay action, the tougher recovery becomes.
See, with the Ukraine-Russia war possibly nearing an end, investors expect Russian oil to flood back onto the global market without the fear of sanctions.
But despite OPEC’s struggles, an unexpected factor has been keeping oil prices afloat. . .
The U.S. has actually been propping up oil prices by refilling the Strategic Petroleum Reserve (SPR).
- The SPR is the U.S. government’s emergency crude stockpile, stored in underground salt caverns to use during supply disruptions or energy crises.
- Under President Biden, the U.S. drained the SPR by nearly 50% in three years -from ~650M barrels in Q1 2021 to ~350M barrels in Q4 2023 (see chart below).
- The goal was to flood the market with oil, curbing soaring inflation and driving down prices - to OPEC’s fury
But since late 2023, the U.S. has been buying back oil at lower prices to refill the SPR - essentially subsidizing OPEC+ and keeping oil prices higher than they otherwise would be.
Funny how that works. One side cuts to try and lift prices, and the other buys which pushes prices higher.
But yet, the market keeps slipping away from them both.
Keep that in mind - oil prices could have more room to fall if OPEC raises output.
Figure 3: Bloomberg, February 2025
Anyway, who knows what will happen?
This is Just some food for thought as we watch how these trends develop.
As always, we’ll be keeping a close eye on things. Enjoy the rest of your weekend.