Weekly Economic Trends and Indicators

The Headlines:

The Bureau of Labor Statistics (BLS) reported on Friday U.S. nonfarm payrolls increased by a seasonally adjusted 142,000 in August. This was slightly below expectations of around 160,000 and up from 114,000 in July. The national unemployment rate edged down slightly to 4.2%. Nonfarm payroll numbers from June and July were also revised downward by a combined 89,000. The ADP National Employment Report, which typically precedes the BLS report by a couple of days and often provides an early preview of what the BLS will report, showed that the private sector added 99,000 jobs in August.

Another important labor market indicator last week was the Job Openings and Labor Turnover Survey (JOLTS), which was released last Wednesday for the month of July. While the actual sizes of the changes in openings, hires and separations were relatively small, the direction of the changes pointed to a continuing trend of fewer openings and hires and more layoffs.

The Details:

Private nonfarm payrolls were up 118,000 according to the BLS which was slightly above the 99,000 reported by ADP. Since we are most likely near a turning point and the past few months have been revised downward, it is also likely that this month’s number will be revised downward as well, which is further evidence of a slowing labor market.

Among the sectors, manufacturing was down the most (-24,000), with the retail trade (-11,100) and information (-7,000) sectors also losing jobs in July.

The Context:

We are clearly in a slowing labor market, however, there is still no evidence that the bottom has dropped out. There is still growth in most sectors, and unemployment is still quite low by historical standards. While there are voices saying that a recession is right around the corner, that is by no means a sure thing.

Part of the difficulty in interpreting the current labor market data is that many observers have never experienced a “soft landing” like the one that is potentially occurring right now. The last time we saw a series of interest rate increases of this magnitude which was not followed by a recession was in 1995, nearly 30 years ago. Therefore, while the current slowdown of the labor market may be somewhat distressing, a soft landing, by definition, should have some below average job numbers temporarily. Provided it does not turn into an actual decline, there is no reason (yet) to be overly concerned.

The key factor will be to see how consumer spending reacts once interest rates start to come down. Currently, consumer spending is still strong, and if lower interest rates can keep it that way as the labor market slows, it should provide some cushion to the broader economy. Next week, we will look at how and why consumer spending could go in either direction from here.

Next week: The strength of the consumer under current economic conditions