Over the past year we have been witnessing rising unemployment on the back of skyrocketing consumption and corporate profits. The picture gets different, though, if we separate several large tech companies and the rest of the economy.
Despite solid payrolls and historically low unemployment rate we cannot deny that unemployment is gradually growing, and job openings are falling. Such labor market behavior seems strange on the back of higher-than-average GDP growth.
The nature of this becomes clearer if we strip away Big Techs from calculating corporate profits and employment. Since COVID the share of big tech companies in total revenues has doubled:
Figure 1
Big techs here are:
· Amazon
· Microsoft
· Apple
· Nvidia
· META
Corporate profits without these six names look quite depressing:
Figure 2
In the Labor Market these six companies only occupy 1.3%:
Figure 3
Headcount on Figure 3 includes staff abroad as well, so the actual Big Tech employment in US is even lower. Moreover, the pace of hiring has dropped since 2021.
This means that the rest of the economy providing almost 99% of jobs is not feeling well. The GDP-adjusted value of US corporate profits ratio to GDP is flirting with the bottom of the range it was in before COVID.
This contrasts with the several strong reporting seasons in a row that we have seen over the past six quarters. The strength of firms’ reports, though, is based on quite conservative assumptions and guidance. The second thing to be accounted for is that the GDP has been growing faster than expected, so in nominal terms profits growth is not so bad.
However, for the Labor Market the GDP-adjusted value should be considered. As Figure 4 shows, the minimums of the GDP-adjusted Corporate Profits generally follow turning Unemployment upwards:
Figure 4
The current pattern seems an exclusion, but only before taking Big Techs into consideration.