Friday, August 2, 2019

July jobs report: good headline masks signs of serious producer-led slowdown

 - by New Deal democrat

  • +164,000 jobs added
  • U3 unemployment rate unchanged at 3.7%
  • U6 underemployment rate declined -0.2% from 7.2% to 7.0% (NEW EXPANSION LOW)
Leading employment indicators of a slowdown or recession

I am highlighting these because many leading indicators overall strongly suggest that an employment slowdown is coming. The following more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were very mixed this month.
  • the average manufacturing workweek fell -0.3 from 40.7 hours to 40.4 hours. This is one of the 10 components of the LEI, and will have a big negative impact. THIS IS A SERIOUS DECLINE.
  • Manufacturing jobs rose by 16,000. YoY manufacturing is up 157,000, a deceleration from last summer’s pace.
  • construction jobs rose by 4,000. YoY construction jobs are up 202,000, also a deceleration from last summer. Residential construction jobs, which are even more leading, rose by 4000.
  • temporary jobs rose by 2200.
  • the number of people unemployed for 5 weeks or less rose by 240,000 from 1,961,000 to 2,201,000. The post-recession low was three months ago.

Wages and participation rates

Here are the headlines on wages and the broader measures of underemployment:
  • Not in Labor Force, but Want a Job Now: fell by -279,000 from 5.322 million to 5.043 million
  • Part time for economic reasons: declined by -363,000 from 4.347 million to 3.984 million (NEW EXPANSION LOW)
  • Employment/population ratio ages 25-54: down -0.2% to 79.5%. This has now declined -0.4% from the peak at the beginning of this year.
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.04 from  $23.42 to $23.46, up +3.3% YoY. This is still a slight decline from the recent YoY% change peak.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)  

Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  
  • Manufacturing jobs rose an average of +13,000/month in the past year vs. the last seven years of Obama's presidency in which an average of +10,300 manufacturing jobs were added each month.   
  • Coal mining jobs declined -100, an average of 8 jobs(!)/month in the past year vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
May was revised downward by -10,000. June was also revised downward by -31,000, for a net change of -41,000.

Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime declined -0.2 hours to 3.2  hours.
  • Professional and business employment (generally higher-paying jobs) rose by 31,000 and  is up +367,000 YoY. 
  • the index of aggregate hours worked for non-managerial workers declined by -0.2%
  •  the index of aggregate payrolls for non-managerial workers rose by 0.1%  
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey rose by 283,000  jobs.  This represents an increase of 1,324,000 jobs YoY vs. 2,246,000 in the establishment survey. This survey, which has been negative three months this year, was a major disconnect from the establishment number. The household survey has a tendency to turn first, and this month it showed up in the establishment survey.
  • Government jobs rose by 16,000.
  • the overall employment to population ratio for all ages 16 and up rose 0.1% to 60.7% m/m and is up 0.2% YoY.          
  • The labor force participation rate rose 0.1% from  62.9% to 63.0% m/m and is up +0.1% YoY.


This was a decidedly mixed report, but the big positives were in the coincident category, while the biggest negatives were in the leading category.

The positives included a new low in the underemployment rate, including a new low in involuntary part time employment, and continuing if modest gains in the three most leading job categories. The household jobs number also has jumped higher for the second month in a row.

But the negatives were more important in my opinion. Most importantly, the average manufacturing workweek declined seriously, and is down -1.0 hour from its peak, which has almost always presaged a recession. Overall goods producing jobs were only up 16,000, a pathetic share of the total market. The prime age employment to population ratio is now in a significant declining trend from its January peak. Revisions also continued to be negative, and the YoY change in the household jobs survey remains much lower than the establishment survey, two trend changes that have a tendency to change at turning points. The YoY change in the establishment survey is also decelerating.

So, while the headline jobs number continues to be quite good, the underlying internals continue to be most consistent with a producer-led serious slowdown.