Charts of the Week: US Labour Market Shifts, Banking System Pressure, and UK Wage Headaches

Summary

• US employer preferences may be changing as reliance on temp workers falls.
• The US banking system appears under pressure as NIM contracts in Q1.
• UK wage growth remains hawkish, impacting the BoE.
• OPEC+ supply cuts are filtering through to the oil market.

Are Employer Preferences Changing?

The?latest US labour market data ?shows the employment share of temporary services fell below pre-pandemic levels (Chart 1). This has previously signalled labour market weakness. But this time, given other macro indicators suggest economic strength, a lower reliance on part-time work is likely to reflect a long-term change in employer preferences. For instance, employers may have decided to decrease their reliance on temporary work because it proved difficult and expensive to secure during the pandemic.

US Banking System Under Pressure

Q1 saw a small contraction in the net interest margin (NIM) for US banks (Chart 2). This is rare and the first time since 1984 that it has happened in the middle of a Fed tightening cycle. Normally, NIM increases when the Fed raises rates as the yield on banks’ assets generally rises faster than liabilities. Deposits have proven to be historically resilient and tend to adjust at a slower rate. The Q1 margin compression is?projected to persist ?and potentially intensify due to the magnitude, rapidity, and probable duration of this cycle.

UK Wage Growth Remains Hawkish

Headline wage growth numbers proved a hawkish interruption to an otherwise dovish labour market data release (Chart 3). 3MMA YoY total earnings rose to 6.9% (+0.2pp MoM), while regular pay growth rose to 7.3% (unchanged MoM). This could cause a?headache for the BoE .

Supply Cuts Hit the Oil Market

The price of the global benchmark for oil, Brent, has remained in a tight range in recent weeks. But we can see beneath the surface that OPEC+ cuts are beginning to impact the oil market. For example, Dubai crude has begun to trade at a slight premium to Brent for the first time since 2020 (Chart 4).

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