PE & VC News

On Friday, the U.S. Bureau of Labor Statistics (BLS) released their monthly jobs report. As has been widely reported, the net new jobs created blew through expectations at 303,000 net new jobs in March. The better-than-expected jobs number begs the question – How healthy is the American labor market? Here are five charts to address that question.

The Broad Picture

First, the broad picture. There are 158,133,000 employed individuals in the United States (seasonally adjusted). This is up from the pre-pandemic February 2020 count of 152,309,000. Although there are problems with the American labor picture, it could be much worse.

The Labor Force Participation Picture

Another gauge of American labor picture is labor force participation. At 62.7%, the working age population is still behind where labor force participation stood in February 2020 at 63.3%. On the one hand, this suggests there’s room for further employment expansion, while on the other hand it perhaps suggests that fewer Americans want to work the jobs that await them in the labor market.

The Full-time and Part-time Employment Picture

A third view of the American labor picture is the reporting of individuals saying they usually work full-time and those that report usually working part-time. According to the Household Survey (a survey by the BLS of a sample of U.S. households), since 2023, the number of individuals reporting they usually work full-time is down 1.347 million. By contrast, the number of individuals reporting usually working part-time is up 1.888 million. The drop in full-time employment began in December 2023, at the same time that part-time work started rising quickly. All being said, this does not necessarily suggest a downturn in economic conditions is imminent, but it does suggest caution.

The Wage Picture

The fourth chart is the wage picture. Year-over-year growth in wages stood at 4% in March, down from the March 2022 peak of 7%. Although wages are trending down, growth in wages at 4% is still well above what would be comfortable for Federal Reserve policymakers, whose job it is to bring inflation down to 2% (preferably 0). The wage picture suggests there’s still a long way to go.

The Unemployment Picture

The fifth view is the unemployment picture. Shown in the figure below is the BLS’ reported unemployment rate with its 12-month moving average. Overall, the U.S. unemployment rate dropped from 3.9% in February to 3.8% in March. Of a bit of concern, the unemployment rate has been floating above its 12-month moving average for almost a year now (since May 2023). Typically, when the actual unemployment rate floats above its 12-month moving average, the U.S. is either in a recession or is on the cusp of entering one. This measure is worth watching.

Summing Up

Overall, the American employment picture is relatively healthy, with employment at an all-time high even though full-time employment has been trickling down over the past year. To some, the jobs picture may look like we’re at peak employment, whereas to others the employment market is hitting a healthy cruising speed. The coming months will give us more tell on what the true story is.

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In recent years, investors have taken a shine to private debt. Given the increased interest, here’s a review according to a recent report out of private equity data provider Pitchbook.

The Broader Picture

The first view is the broader picture of returns for 2023. Loans, as measured by Morningstar’s LSTA Index, performed well, up 13% for 2023. This was in line with the returns of High yield bonds, and much stronger than the returns of Treasuries and High grade.

Where is the fundraising coming from?

Which entities are investing in private credit fundraising? Interestingly, the top source of funds in 2023 was Traditional at 52%, implying that almost half of all fundraising was from non-Traditional source. Leading out of the non-Traditional providers was Insurance at almost 40%, followed by Wealth at about 8%.

More private credit IPOs than private equity IPOs?

Perhaps one of the more fascinating findings from the Pitchbook report is that there have been more private credit IPOs than there have been private equity IPOs. Simply amazing, and maybe not a good trend. In any event, the next table has four private credit IPOs of 2024. On top is Blue Owl Capital Corporation III at $1.9 billion, followed by Nuveen Churchill Direct Lending at $1.0 billion, Morgan Stanley Direct Lending at $1.8 billion, and Palmer Square Capital BDC at $536 million.

How are private credit fundraising and dry powder looking?

The next view is of private credit fundraising and dry powder. For the fourth consecutive year, private debt funds will likely exceed $200 billion for the fourth consecutive year. The first year private credit exceeded $200 billion was in the pandemic-cash era of 2020 at $212 billion. Fundraising reached its all-time high of $288 billion in 2021, then dropping to $229 billion in 2022 and $191 billion in 2023.

Switching to the dry powder view, the next figure has an accounting of the dry powder picture. Amazingly, dry powder is almost a third of all assets under management of $506 billion ($1.6 trillion in assets under management).

Summing Up

Overall, 2023 was a good year for private credit. Given that interest rates are likely to change in 2024 and 2025, it will be worth watching to see what happens with interest in private credit funds over the coming two years. Will private credit be able to continue to provide a good return to investors with lower interest rates? Perhaps – and it depends on how investors view risk and the potential return of competing asset classes in relation to private credit.

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