July jobs report: especially with revisions, an awful report that screams near-recession

 

 - by New Deal democrat

Let me cut right to the chase in this first sentence: the only reason this employment report was not recessionary is that it did not have a negative number. Aside from that, it was either  flat to awful almost across the board.



Put another way, even before the utter chaos of the new Administration in Washington, my focus had been on whether the economy would have a “soft” or “hard” landing, i.e., recession. This report, especially with the revisions to the last two months, virtually screams “Hard Landing!!!”

Below is my in depth synopsis.

HEADLINES:

• 73,000 jobs added. Private sector jobs increased 83,000. Government jobs declined -10,000. The three month average declined sharply to +32,000, well below the breakeven point necessary with any kind of population growth.
• Within government jobs, Federal jobs declined -12,000, while State jobs increased 5,000 and local jobs declined -3,000.
• The pattern of downward revisions to previous months went thermonuclear this month. May was revised downward by -144,000 to only +19,000, and June by -133,000 to only +14,000, for a net decline of -258,000. 
• The alternate, and more volatile measure in the household report, declined by -260,000 jobs. On a YoY basis, this series increased 1,887,000 jobs, or an average of 157,000 monthly.
• The U3 unemployment rate rose 0.1% to 4.2%. Despite this, the real time “Sahm rule”indicator is only at +0.1%, meaning it has not been triggered.
• The U6 underemployment rate rose 0.2% to 7.9%, down -0.1% 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 145,,000 to 6.175 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 sharply negative:

• 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 -11,000, the third decline in a row. This series declined sharply in the second half of 2024 before stabilizing earlier this year. It is now at a 3+ year low.
• Truck driving, which had briefly rebounded, declined another -3,600.
• Construction jobs rose 2,000.
• Residential construction jobs, which are even more leading, declined -1,400. Further, with revisions this is the 4th decline in a row for this important series.
• Goods producing jobs as a whole declined -13,000. With revisions, this is now the third decline in a row, which is very important because these jobs typically decline before any recession occurs. Further, on a YoY% basis, these jobs are now negative by -0.1%. Only three times in the past 70+ years - 1952, 1967, and 1984 - has this series been negative YoY without it being during or shortly before a recession. 

• Temporary jobs, which have declined by over -650,000 since late 2022, declined again this month, by -4,400, close to their post-pandemic low set last October.
• the number of people unemployed for 5 weeks or fewer rose 58,000 to 2,299,000, 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 $.08, or +0.3%, to $31.34, for a YoY gain of just under +3.9%, its lowest YoY% gain in 4 years. Nevertheless, this continues to be well above the 2.7% YoY inflation rate as of last month.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose 0.3%, and is up 1.1% YoY, about average for the past three years.

• The index of aggregate payrolls for non-managerial workers rose 0.6%, rebounding sharply from last month’s initially reported -0.2%, which has been revised to +0.1%. It is now up 5.0% YoY. 

Other significant data:

• Professional and business employment declined another -14,000. These tend to be well-paying jobs. This is the third decline in a row, and is the lowest since its May 2023 peak except for October 2024. It remains lower YoY by -0.3%, 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 declined -0.1% to 59.6%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate also declined -0.1% to 62.2%, vs. 63.4% in February 2020.

SUMMARY

This was a horrible report. About the only “good” thing to say about it was that the headline number was not actually negative.

There were a few rays of light. Wages and payrolls continued to rise at a good pace, and in particular it is all but certain that real aggregate nonsupervisory payrolls made another new all-time high last month, which is an excellent short leading indicator for continued economic growth. And total construction jobs rose slightly, although that was in the more lagging public sector.

But aside from the aforementioned aggregate payrolls, and the manufacturing workweek which was steady, all of other, important leading indicators in the report declined. Perhaps most importantly, residential construction jobs appear to have at long last decisively turned down. This is typically one of the last shoes to drop in that sector before a recession begins. And more broadly, goods producing jobs as a whole - again, with revisions - also appear to have made a significant downward turn.

In the previous two months, the only reason the unemployment and underemployment rates did not go up was that the labor force participation declined significantly. This month their luck ran out as, even with another LFPR decline, both unemployment and underemployment went up. And once again, further out on the spectrum, those not in the labor force but who want a job increased to the highest level in 4 years.

Last month I concluded that “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.” Yesterday I wrote that real personal income and spending merited a “yellow flag” and would have warranted a “recession watch” but for the tariff front-running issue. With this morning’s report, we are now a hair’s breadth away from “recesion watch.” The only reason not to hoist a red flag now is that I still want to see the ISM manufacturing and services reports for July.