- by New Deal democrat
As per usual, there’s no economic news today, the first Monday after the employment report. So let’s dig into some detail about what was naughty and what was nice from Friday’s anemic report.
Let me start with the naughty, and in particular the -50,000 job losses (seasonally adjusted) in local education. While this is in large part an issue with difficult seasonal adjustments in the summer when many staff are temporarily laid off, Ben Casselman highlighted that it isn’t the only reason; school employment has been swan diving for a few months:
To which Joshua Goodman makes an excellent point:
I looked up these funds, and sure enough, they were paid out to school districts over a three year period that ended in September 2024. Funds allocated had to be spent by March of this year. So it looks like Joshua Goodman is correct.
But of course losses in education jobs weren’t the only negative point. After stabilizing in 2024 and 2025, the YoY% change in average hourly wages (blue) have also been decelerating sharply this year, even as inflation (red) has accelerated:
Historically wage growth decelerates during sharp slowdowns and recessions; and having inflation pick up even more has never been a good sign:
Additionally, aggregate nonsupervisory payrolls (blue) increased less than 0.1% in July:
Should consumer prices increase more than 0.1% in July, this will mark another downturn in real payrolls, which peaked in January. This would be an important yellow flag for recession. On the other hand, the real number has historically tended to turn negative YoY within a month or two before or after a recession begins, and almost certainly that will not happen this month unless there is a very sharp increase in consumer inflation on the order of 0.8% or more, which is unlikely:
And of course total employment has grown only 373,000 in the past 15 months, for an average of 25,000 per month. As shown in the graph below, employment (red) has increased only 0.3% since the end of 2024. Of the other three noteworthy monthly series tracked by the NBER for recession dating, real personal income less transfers (orange) has actually declined since then, having peaked in summer 2025:
Although there may have been a “mini-recession” last summer and autumn, while the consumer-side metrics as per above have stalled or declined, the economy has been kept out of recession by the producer side, via industrial production (blue) and real sales (green).
In addition to the bad data, there was some mixed data in the form of aggregate hours worked, which declined -0.1% for the month. Historically, hours decline more intensely than jobs, and turn negative YoY before jobs do as well:
But here’s what the last several years look like:
Despite the monthly decline, on a YoY basis hours have improved compared with the total number of jobs, something that has typically happened during recoveries from slowdowns or recessions.
There was also some positive data. First, as forecast by the declines in jobless claims (Blue, right scale), the unemployment rate (red, left scale) declined to an 18 month low of 4.1%:
Additionally, the leading sectors of manufacturing employment (red), construction (gold) and goods production as a whole (blue) all saw increases in the month:
And the average workweek in manufacturing increased to a new post-pandemic high:
Of course, much of this is tied to the AI data center construction Boom, so cross your fingers that it does not prove to be a bubble. I do think that this positive trend will have to reverse before any recession might begin.