August jobs report: for the first time, including revisions, more consistent with a hard landing

 

 - by New Deal democrat

My focus continues to be on whether jobs gains are most consistent with a “soft landing,” i.e., no further deterioration, or whether there is further decline towards a recession. 

For a change, this month the Establishment report was the weakest in several years, if still positive. Meanwhile the Household report rebounded for the month, but now shows an absolute decline in job holders YoY.

Below is my in depth synopsis.

HEADLINES:

• 142,000 jobs added. Private sector jobs increased 118,000. Government jobs increased by 24,000. 
• There were big downward revisions to the last two months. June was revised downward by -61,000, and July was revised downward by -25,000, for a net decline of -86,000. This continues the pattern from nearly every month in the past 18 months of a steady drumbeat of downward net revisions.
• The alternate, and more volatile measure in the household report, showed an increase of 168,000 jobs. On a YoY basis, however, this series has now actually *declined* by -66,000 jobs. With the sole exception of 1952 and one month in 1957, this has always and only occurred shortly before or during recessions.
• The U3 unemployment rate declined -0.1% to 4.2%, but the “Sahm rule” recession indicator Is still in effect.
• The U6 underemployment rate rose 0.1% to 7.9%, 1.5% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now rose another 37,000 to 5.637 million, vs. its post-pandemic low of 4.925 million in early 2023.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. Outside of construction, all of the rest were flat or negative.

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, increased 0.1 hours to 40.7 hours, but is down -0.8 hours from its February 2022 peak of 41.5 hours.

• Manufacturing jobs declined -24,000.
• Within that sector, motor vehicle manufacturing jobs increased 2,500. 
• Truck driving declilned -1,400.
• Construction jobs increased 34,000.
• Residential construction jobs, which are even more leading, rose by 4,800 to another new post-pandemic high.
• Goods producing jobs as a whole rose 10,000 to another new expansion high. These should decline before any recession occurs. *BUT* these are only up 0.9% YoY, the lowest such increase since the pandemic shutdowns, thus showing clear signs of deceleration.

• Temporary jobs, which have generally been declining late 2022, fell by another -2,900, and are down about -500,000 since their peak in March 2022. This appears to be not just cyclical, but a secular change in trend.
• the number of people unemployed for 5 weeks or fewer rose 117,000 to 2,468,000.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.11, or +0.4%, to $30.27, for a YoY gain of +4.1%. This is an increase from 3.8% YoY growth last month, but the longer term trend continues to be deceleration from their post pandemic peak of 7.0% in March 2022. Importantly, this is significantly higher than the 2.9% YoY inflation rate as of last month.

Aggregate hours and wages: 

• the index of aggregate hours worked for non-managerial workers increased 0.1%, and is up 1.2% YoY, in trend for the past 12+ months.

•  the index of aggregate payrolls for non-managerial workers was rose 0.4%, and is up 5.3% YoY. These have been slowly decelerating since the end of the pandemic lockdowns, but have remained almost steady for the past 9 months. With the latest YoY consumer inflation reading of 2.9%, this remains powerful evidence that average working families have continued to see gains in “real” spending money.

Other significant data:

• Professional and business employment rose 8,000. These tend to be well-paying jobs. This series had generally been declining since May 2023, but earlier this year had resumed increasing again. As of this month, they are only higher YoY by 0.5% - a very low increase that has *only* happened in the past 80+ years immediately before, during, or after recessions.
• The employment population ratio remained steady at 60.0%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate also remained steady at 62.7%, vs. 63.4% in February 2020. The prime 25-54 age  participation rate declilned -0.1% from84.0%, the highest rate during the entire history of this series except for the late 1990s tech boom, to 83.9%.

SUMMARY

This month confirmed a significant further downshift in job creation. From 2020 through this past March, the lowest monthly job gains were 136,000 in December 2022, which was the *only* month during that period below this month’s 142,000. But since then, four of the five last months were below 150,000. In addition to this month, April showed 108,000 job gains, June as revised 118,000, and July 89,000. This is just barely enough to keep up with population growth. Further, as indicated the Household report (which has probably underestimated immigration substantially) now shows an absolute decline YoY.

The best news was the continued growth in nonsupervisory payrolls, which after inflation for August is reported will almost certainly show another all-time high. It is unheard of for a recession to happen while real aggregate payrolls for average workers are still growing. That the leading construction sector, and goods production as a whole, continued to show growth also are pluses, and negative any imminent recession.

But manufacturing seems at long last to have rolled over, with the lowest reading in almost two years except for one month in 2023, despite the slight increase in the manufacturing workweek. 

Along with the big downward revisions to the last several months, this month’s report is the first time that there is substantial evidence that the jobs market may have moved past a “soft landing” into a hard slowdown that could easily tip over into outright declines by the end of the year. This adds to the evidence that the Fed has been behind the curve, and needs to cut rates, perhaps aggressively, beginning asap.