Weekly Economic Trends and Indicators

The Headline:

On August 4, the Bureau of Labor Statistics (BLS) reported that nonfarm payrolls increased by 187,000 in July. This was somewhat lower than expected. In addition, June nonfarm payroll employment was revised downward from 209,000 to 185,000. The unemployment rate stands at 3.5%, down only slightly from last month’s 3.6%.

The Details:

The labor report also contains data on hours and earnings. Average weekly hours were essentially unchanged in July at 34.3 while earnings rose $0.14 to $33.74. The pace of earnings growth is just under 5% (annual rate), which is still uncomfortably high, though down significantly compared to last year.

The service sector was the leader in job growth this month with over half of the net increase in jobs (100,000) coming from private education and health services, with most of that (87,100) in health care and social assistance. Most other categories of employment added 20,000 jobs or less. Categories that lost jobs in July include manufacturing (-2,000), transportation and warehousing (-8,400), information (-12,000), and professional and business services (-8000). The largest losses were seen in temporary help services (-22,100). This is potentially concerning as a decline in temporary help can be a leading indicator of recession as firms shed temporary jobs first before laying off permanent employees.

The Context:

This month’s report is certainly not as glowing as some from the previous several months. As many analysts have been warning of recession for the better part of a year, the labor market has continued to roll ahead seemingly oblivious to the pessimistic forecasts. The downward revision for the last two months and the decline in temporary help is certainly not positive news.

Overall, the labor market is seen as a lagging indicator—more likely to confirm we are in a recession than predicting it in advance. Even so, some softening before a recession is typically seen, including in areas such as manufacturing and temporary help. Viewed in that light, this news is not good. On the other hand, 187,000 net new jobs is still not bad. Labor force participation has held steady for five months, and the unemployment rate remains low. While these are good signs, the overall picture is mixed.

What will the Federal Reserve make of this data? The signs of a slowing economy are starting to appear, making it more likely that the Fed will hold rates steady in September. On Friday afternoon following the news, the CME FedWatch Tool reported an 87.5% chance that they will hold rates where they are, up from 82% the day before. More analysts are talking confidently of a recession by year end as many remain skeptical that a recession can be totally avoided when bringing down inflation this far, this fast. Even so, many firms continue to report positive earnings and remain bullish on the future. We may be nearing a point sometime this fall where the uncertainty about a possible recession will be resolved—one way or another.

Next week: International Trade Update