The US economy added far fewer jobs than expected in July and the unemployment rose, underscoring a cacophony of recession banter and exacerbating concerns that the Fed might’ve erred in forgoing the opportunity to cut rates at this month’s policy gathering.
The headline NFP print for July was 114,000, nowhere near the 180,000 consensus, 100,000 below the average gain observed over the past 12 months and the second-slowest pace since the last negative print in December of 2020.
We’ve now had two months of relatively subdued hiring in the last four releases — April’s headline, you’re reminded, was just 108,000.
The revisions in Friday’s release lopped 27,000 from June, leaving that month’s headline at 179,000. The three-month average has now spent two months below the 200,000 threshold.
Job gains were concentrated in health care and construction. Government hiring downshifted and the information sector shed 20,000 jobs. Leisure and hospitality hiring was very soft. Again.
The unemployment rate unexpectedly rose two tenths to 4.3%. Economists expected no change. Shows what they know. By Friday, traders were widely anticipating an increase. The participation rate ticked higher, but if anything that just amplifies the signal.
Claudia Sahm’s eponymous recession indicator is now triggered — “trigger warning,” as they say in the culture wars arena.
Although both Jerome Powell and Sahm herself have downplayed the indicator as an infallible recession harbinger in the current environment, markets won’t dismiss it. It’s the only indicator with a better recession-forecasting record than the yield curve.
The table above, from BofA, gives you a sense of the leads/lags. Maybe this time’s different. But I kinda doubt it.
“Chairman Powell may not be concerned if the Sahm Rule is triggered, but markets will be,” JonesTrading’s Mike O’Rourke remarked. “It is one thing to have lofty valuations in a ‘Goldilocks soft landing’ as the FOMC pivots towards easing. Those same lofty valuations offer no protection if the slowdown gains momentum and risks evolving into a recession.”
Wage growth in Friday’s release was relatively tame, at 0.2% MoM overall and 0.3% for nonsupervisory workers. At this juncture, the Fed’s far more concerned with the jobless rate than AHE, particularly given the favorable read on the Employment Cost Index earlier this week and a JOLTS quit rate that’s back to pre-pandemic levels.
Obviously, the “low” NFP headline and the highest jobless rate since October of 2021 will be contextualized by the Fed’s updated assessment of the risk tradeoff as telegraphed by the new FOMC statement language this week, and also by Powell during the press conference. Fed officials are now just as attentive to rising unemployment as they are to the risk of rekindled inflation. And the unemployment rate’s rising. The household survey showed a mere 67,000 gain on Friday.
The jobs report capped a week of soft data, all of which suggests, at best, that the US economy has downshifted. At worst, it suggests the Fed missed an opportunity to insure against a recession this month. Maybe Bill Dudley was right after all.
There is a decent probability of a cut after the next couple of meetings or 50 bps at the September meeting. The fomc needs to stop dithering and get on with it….
H … your opinion – were economist estimates this bad prior to Covid? I can’t remember and am too lazy to research. Point being – have signals morphed, changed as result of Covid and economists keep using old tools (and missing badly) … that old saying, doing same thing and expecting different results is …
A day late and a quarter point short. The Fed continues to be behind the curve, arrogant in its attitude that it can fine tune the economy. I don’t know if it is worse these days with its more open dialogue with the markets versus the old days of complete secrecy.
I long for the days not so long ago when bad news was good news.
It only takes a data point or two for the prognosticators to turn on Powell. It seems like a month ago everyone agreed the Fed would cut in September and all was OK. They still agree they’ll cut in September but now the opinion is they made a terrible mistake, with the accent on terrible. There’s little room for nuance these days. The market seems to act like an open wound these days. The harmonic vibrations are larger with shorter duration.
They call it a “Content Warning” these days. The word “trigger” was too triggering.
“Content Advisory” would be better. The word “warning” is a little traumatizing to folks who’ve suffered warnings before.
I apologize to anyone I may have hurt by mentioning “suffering”.
And to anyone to whom this apology evokes memories of past painful apologies.