Job creation across the US economy slowed to a relative crawl over the last three months, hotly-anticipated BLS data released on Friday showed.
Hiring was weaker than expected in July, and far (far) slower in May and June than initially reported.
The NFP headline, at 73,000, missed estimates by a fairly wide margin. Consensus wanted 105,000 from the readout. The revisions were, to use the BLS’s language, “larger than normal.” I’d call that euphemistic. The combined downward revision was an eyebrow-raising 258,000.
As the figure shows, nearly all of the initially-reported job gains for May and June were revised away on Friday. The three-month average is now just 35,000, the lowest in years.
I assume there’s some explanation for the size of the revisions. Technically, they’re due to “additional” (late) responses from businesses and recalibrated seasonal factors. It looks as though half of the 258,000 came on the government side. Who knows, maybe staff shortages at the BLS are inhibiting the bureau’s operational capacity.
If there’s any truth to that latter suggestion — i.e., if staffing shortfalls are leading to measurement error in the data — it’s an example of Donald Trump’s federal hiring freeze working at cross purposes with his efforts to engineer easier monetary policy. Because I can assure you: If the FOMC’s hawks — Jerome Powell included — were looking at combined May/June hiring of just 33,000 instead of nearly 300,000 when they met this week, they would’ve favored a cut.
Do note: Friday’s revisions wiped away virtually all private hiring from June’s report. As originally reported, private payroll growth in that release was 74,000. Now, it shows just 3,000. In July, private hiring recovered to show an 83,000 gain, which is to say all hiring last month was attributable to the private sector. That, at least, is a silver lining and it matches up with July’s ADP readout.
But, substantially all of July’s private hiring was in healthcare and social assistance. Every other industry category was weak. On the government side, federal payrolls shrank another 12,000, bringing the YTD loss to 84,000.
As the figure shows, the three-month average for private hiring is now just 52,000, the second-lowest since the beginning of the pandemic. Remember: This is an administration which promised to bolster private hiring.
Average hourly earnings rose 0.3% MoM and 3.9% YoY. Those figures are a touch warm, frankly. On Thursday, the BLS’s ECI release showed labor costs rose faster than expected in Q2.
On the household side of Friday’s jobs report, the unemployment rate ticked up to 4.2% and the participation rate moved down. That’s a bad combination. The drop in overall participation was the third straight, and at 62.2%, the rate’s the lowest since November of 2022. It’s down by half a point this year.
Insult to injury: The household survey showed a 260,000 decline in total employment. The three-month average there is -289,000.
I’d call Friday’s release uniformly foreboding were it not for the rebound in private sector payrolls although, as noted above, the fact that the strength was in healthcare and social assistance arguably makes even that silver lining trifling.
Needless to say, the Trump administration will blame the Powell Fed for this. While I certainly agree (and I made this abundantly clear since June) that the Fed should’ve cut at the July FOMC, this situation isn’t anyone’s “fault.” We’re late cycle. And uncertainty’s rampant.
If you want to assign blame, surely it falls at the feet of the man who froze federal hiring and unilaterally engineered a five-fold increase in the average US tariff rate.
“Official” economic data was always associated with smaller grains of salt depending but now it’s a cube (CPI, etc). Or a brick lol
To say that the powers that be want to massage (distort) numbers to alter perception is an understatement. But what do I know, I’m just a caveman!
Advocates for immigration crackdowns and mass deportations like to argue that they will raise US wages. They were right!
…at least unti/unless the combined effects of tariffs and decimation of industries dependent on immigrant labor cause a deep enough recession and unemployment levels that wages decline…
What comes to my mind is H’s comment that the recent jump to full allocations in vol-control positioning ” …looks more like a trampoline”. I don’t think anyone has been positioned for discovering that the 3-month moving average of your macro narrative was simply wrong. BLS may have just kicked away the trampoline.
If I pattern-match on market stereotypes, this looks like the sort of catalyst media will use to explain a seasonal correction a month or two from now. We’ll see; I suppose it depends on whether this revisionism spreads to outlooks.
Revised May and June NFP is now more consistent with other more dour labor market data. Might expect July NFP to be revised down as well. Are we starting to see hard data and soft data converge? Vibecession 1H25 become precession 2H25 then recession 2026?
Wait a minute – I am reading that excluding healthcare, L3M payrolls are -53K, -45K, and flat [to be revised -ve] . . . my my, this is a dour report.
Wow. Thanks for that nugget, JL.
Meanwhile I notice that volatility is creeping back up today, though when it comes to our friends the robo-traders, one flower does not make spring.
As of yesterday, 67% by name/70% by market cap of the SP500 has reported. 80%/91% beat consensus rev, 83%/94% beat cons EPS. 61%/81% saw cons 3Q rev go up, 45%/64% saw cons 3Q EPS go up. Average price reaction to earnings was -0.1%/+0.3%.
By sector: in Technology, 88%/99% saw 3Q cons rev go up, 76%/95% saw 3Q cons EPS up (MSFT). In CommSrvc, 83%/99% and 42%/83% (think GOOG META). The equal-wt/cap-wt difference is starkest in ConsDisc, 57%/88% and 30%/58% (think AMZN). Bringing up the rear were Materials, ConsStpl.
Comparing rev revisions to EPS revisions: almost every sector has higher % 3Q rev increase than 3Q EPS increase, and that applies up cap and down cap as shown from by name and by cap %.
In general, up cap did better than down cap (compare by name %s to by cap %s) and especially so in CommSrvc, Cons Disc. However, down cap did better in Health Care, Materials.
Overall and so far, I still see emerging margin pressure, large cap fundamentally outperforming, and an earnings season neither good nor bad enough to affect the market outlook (today’s whack is macro and Donald’s tariffs, in my view).
Even here where Walt can be very tough on optimism, we are way too soft on Trump. He lies when it is convenient – and that is often. A weird aside: The last time NFP was negative, your chart points out was in November 2020 when Trump.1 was President. Looking forward, I would not be surprised to find the most secent number – yesterday – restated to be below zero. And August is, odds on, below zero. Every time, before anyone writes on him, remember that Trump went bankrupt 6 times.
It’s hard to describe just how bad the July jobs report is.
Start with the 73,000 increase in new jobs. It’s bad enough as it is, but all of the new jobs came from just one industry: healthcare. Healthcare accounted for more than half of all the new jobs created this year.
To put it another way, hardly any other industries are hiring.
Now look at June and May. The labor market didn’t look so bad based on previously reported increases of 147,000 and 144,000 new jobs in those two months. Those figures were whittled away under the latest revisions. June now shows an increase of only 14,000 jobs and the gain in May was just 19,000.
Wow. These unusually large revisions definitely call into question how the Labor Department got its initial estimates so wrong.
The only reason the unemployment rate hasn’t risen faster is that more people are dropping out of the labor force.
As the jobs report showed, finding a job has gotten really hard.
Very hard. And that’s not going to change until the trade wars are over.
Even defense/aerospace manufacturing is down?
How is AI and the GIG economy impacting accuracy, even credibility?
My late wife used to work at the Ohio Bureau of Labor calculating these statistics. The error rate is a knowable value. If your throw those people away, as we have done, nothing good will come of it. Most of people in this process work for state agencies anyway, something our class clown doesn’t control. Do we even have a Labor Secretary these days? As to the effect of AI and Gig work, can’t real know that.
People keep forgetting about the participation rate. At 62%, ~38% of able-bodied people of working age have, for whatever reason chosen not to enter the workforce. Those folks represent millions of potentially valuable assets to whom we no longer have access. That does not promote rising growth. Neither does deporting or barring millions of useful workers from offshore. Buying goods from overseas avoids the need for immigration, lowers our economic risk and creates growth. All that good stuff is being shut down.
Looks like we’ll get the revisions to the revisions next month after Trump installs someone to report these numbers in a way that aligns to his belief that the economy is booming. I wonder where the jobs will magically show up in the next report?
If AI succeeds in reducing labor costs and increasing profits of mega-cap companies, then we may have entered a paradigm where unemployment rises and the EPS of mega-cap tech companies also rises. As unemployment rises, the FED will also have to keep interest rates lower which also keeps a bid under longer term assets such as mega-cap tech stocks. And this all supports continued corporate buybacks of stock. Looks like Goldilocks for mega-cap tech stocks which are evolving to become a safe-haven asset and offer sustainable growth as long as the AI bonanza continues for next few years.
H-Man, it truly is a cluster — employment declining and inflation won’t go away and may go higher with the tariffs being the accelerant. So what fire do you fight?