Weekly Economic Trends and Indicators

The Headline:

The Bureau of Labor Statistics (BLS) reported on Friday that U.S. nonfarm payrolls increased by a seasonally adjusted 114,000 in July. This was well below expectations of around 180,000 and down from 179,000 in June. The national unemployment rate increased by 0.2% to 4.3%. The unemployment rate is now 0.9% above the 3.4% level in April of last year.

Earlier last week, the BLS reported that job openings and hires were down in June compared to May. Separations were also down, but separations often lag openings and hires as a measure of labor market weakness.

Total nonfarm payroll employment in the Quad Cities metro area is down by 2000 compared to a year ago and the unemployment rate stands at 5.0% locally for the month of June. This is the highest unemployment rate for the Quad Cities since January.

The Details:

The shortfall in employment compared to expectations was a result of a slowdown across nearly all sectors with the notable exception of health care where growth continues to be strong. Manufacturing employment was, as it has been for the past several months, essentially flat. The slowdown at the national level is being felt more prominently at the local level due to lower commodity prices which have intensified the slowdown in the agricultural sector.

The information sector and the professional and business services sector are also showing significant weakness both nationally and locally. Nationally, government employment had provided some support to job growth in recent months, but government only added 17,000 jobs last month. Locally, government has been the fastest growing sector for employment over the last year (2.8% growth), but we will not know for another month if that followed the national trend in July.

The Context:

There is no denying that this was a disappointing data point that caught many on Wall Street by surprise. However, when the Fed’s rate tightening cycle began two years ago, everyone feared that it would slow the labor market and possibly even spark a recession. The fact that we have avoided a recession so far might be the real surprise for the more pessimistic among us two years ago.

The question is now whether this is a one-off or a harbinger of things to come. Federal Reserve Chair Jerome Powell signaled at his press conference on Wednesday that a rate cut in September is on the table, but some on Wall Street question whether that will be too late. Many have also pointed out that a key predictor of recession has now crossed an important threshold. We will discuss this indicator, known as the Sahm rule, next week.

Next week: Additional analysis of employment and GDP