June jobs report weakness: not enough for “recession watch,” but not too far away either

 

 - by New Deal democrat



Even before the new Administration took office in Washington, my focus had been on whether the economy would have a “soft” or “hard” landing, i.e., recession. That has only intensified by the utter chaos of this Administration, particularly about tariffs. So my focus now is looking for “hard” vs.”soft” data indicating its impact.

While the headline numbers of this month’s employment report were positive to neutral, the underlying component were mainly weak to negative, including several very important ones.

Below is my in depth synopsis.

HEADLINES:

• 147,000 jobs added. Private sector jobs increased 74,000. Government jobs rose 73,000. The three month average increased +3,000 to +139,000, about average for this year, but above the lowest average last summer.
• Within government jobs, Federal jobs declined -7,000, while State jobs increased 47,000 and local jobs increased 33,000 (likely due to education).
• The pattern of downward revisions to previous months was reversed this month. April was revised upward by 11,000, and May by 5,000, for a net increase of 16,000.
• The alternate, and more volatile measure in the household report, rose by 93,000 jobs. On a YoY basis, this series increased 2,211,000 jobs, or an average of 184,000 monthly.
• The U3 unemployment rate declined -0.1% to 4.1%. Since the three month average is 4.167% vs. a low of 4.0% for the three month average in the past 12 months, or an increase of 0.1.67%, this means the “Sahm rule” is not in play.
• The U6 underemployment rate declined -0.1% to 7.7%, down -0.3% from its 3+year high in February.
• Further out on the spectrum, those who are not in the labor force but want a job now rose by 39,,000 to 6.030 million, its highest level since July 2021.

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. This month they were mixed, but more negative than neutral or positive:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, was unchanged at 41.0 hours, but remains down -0.6 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -7,000. This series had been  in sharp decline, but it has generally leveled off in the past eight months. Nevertheless, with this month’s decline it set a 3 year low.
• Within that sector, motor vehicle manufacturing jobs declined 500.
• Truck driving, which had briefly rebounded, declined another -2,700.
• Construction jobs increased another 15,000.
• Residential construction jobs, which are even more leading, declined -500 from last month’s post-pandemic high.
• Goods producing jobs as a whole increased 6,000 to another post-pandemic high. These jobs typically decline before any recession occurs. But on a YoY% basis, these jobs are only 0.1%, which is very anemic although not necesarily recessionary.

• Temporary jobs, which have declined by over -640,000 since late 2022, declilned again this month, by -2,600, close to their post-pandemic low set last October.
• the number of people unemployed for 5 weeks or fewer declined -210,000 to 2,241,000, vs. its 12 month high of 2,465,000 last August.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.2%, to $31.24, for a YoY gain of just under +3.9%, its lowest YoY% gain in 4 years. Nevertheless, this continues to be well above the 2.4% YoY inflation rate as of last month.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers declined -0.6%. This measure up only 0.6% YoY, the 5th lowest reading over the past two years.

• The index of aggregate payrolls for non-managerial workers declined -0.2%, and is up 4.5% YoY. With the exception of January 2024, this is the lowest gain in the past 4 years. Although this remains well above the YoY inflation rate, it has increased only 0.3% in the past three months, meaning it has almost certainly declined in real terms, although we won’t know that until the next CPI is released.

Other significant data:

• Professional and business employment declined another -7,400. These tend to be well-paying jobs. This series peaked in May 2023, bottomed in October 2024, and is up less than 0.3% since then. It remains lower YoY by -0.2%, which in the past 80+ years - until now - has almost *always* meant recession. This is vs.  last spring when it was down -0.9% YoY.
• The employment population ratio was unchanged at 59.7%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined -0.1% to 62.3%, vs. 63.4% in February 2020.

SUMMARY

Last month I wrote that “Although the headline numbers were positive to neutral, this was about as poor a report as could be during an expansion.” If anything, under the hood this month was even weaker.

For the second month in a row, the only reason the unemployment and underemployment rates did not go up was that the labor force participation declined significantly. The employment/population ratio also declined. Further out on the spectrum, those not in the labor force but who want a job increased to the highest level in almost 4 years.

Additionally, most leading sectors declined, including total and auto manufacturing, trucking, temporary help, and residential construction. Professional and business employment also declined, as did government employment.

Perhaps even more ominous, both aggregate hours and aggregate payrolls outright declined this month, even before accounting for inflation. In other words, the American middle and working class as a whole almost certainly saw an absolute decline in their purchasing power last month - something that typically has happened a few months before a recession begins.

What saved this report from being even weaker was (1) state and local government jobs, mainly in education, which almost certainly involves residual unresolved post-pandemic seasonality; and (2) specialty and finishing construction trades, which tend to be later in the construction process. Additionally, the pattern of downward revisions to previous months was broken this month.

Finally, this report was of a pattern with last month’s personal spending report, which showed a decline in the purchases of goods in real terms. Indeed, if construction jobs had turned down, this report would probably have merited going on “recession watch.” We’re not quite there, but we’re not far away either.