Another Weak Jobs Report and the Market Is Pricing in an Economic Calamity
The latest jobs data might put the size of the penciled-in September FOMC rate in jeopardy.
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We are getting used to the drill. A weak headline print for job creation coupled with downward revisions to the past two months in the small print. Attention financial media: you have to read the material. Your ignorance matches only your arrogance when you report these numbers. For the month of August, the Bureau of Labor Statistics released the results of that agency's twin employment surveys on Friday morning.
The headline number for the event is considered the Non-Farm Payrolls print, which is drawn from the Establishment Survey. This number hit the tape at growth of 142,000 (of course, salted, peppered and seasoned). Wall Street was looking for something close to 163,000 jobs created, so this was a miss. When considering the downward revisions of 25,000 jobs for July and 61,000 jobs for June, the net jobs created in June, according to this survey, was 56,000. Now, that's way below expectation when one realizes that the consensus view for growth of 163,000 jobs was created ahead of the 86,000 jobs that were removed from the data for the past two months.
To make my point from Friday morning's Market Recon column, just consider the June NFP print. In early July, this number was first reported as job creation of 206,000 positions. This was taken down to 179,000 in early August, and that was taken down to 118,000 on Friday morning. How big of a difference is this? Well, historically, job creation of 200,000 per month was considered strong, while job creation of 150,000 or less was considered weak. Smoke and mirrors, or a simply broken model. How the heck do we know?
Sticking With the Establishment Survey
Playing along as if we believe for a second that anything the BLS releases on employment is accurate, where was the growth in employment? The growth was in Leisure & Hospitality, Health Care, Construction and Government hiring.
Who's losing their jobs? There was negative job growth across the manufacturing, retail trade, information and temporary help sectors. The types of manufacturing jobs most deeply impacted were in the Durable Goods producing and Automotive industries.
Average weekly hours returned to a still historically low 34.3 in August, after dipping down to an incredibly low 34.2 in July. Average hourly earnings improved to growth of 0.4% month over month and 3.8% year over year, up from 0.2% and 3.6% for July. Both of these numbers beat Wall Street's expectations. That was a bright spot. It's also inflationary.
Turning to the Household Survey
For once, the job creation number in the household survey beat the NFP print. According to this survey, the economy added 168,000 new employed persons in August, up from 67,000 newly-employed folks in July. The number of unemployed persons decreased by 48,000 as the number of folks outside of the labor force increased by 91,000 individuals.
The national unemployment rate improved to 4.2% from 4.3% in July, while the underemployment rate worsened again from 7.8% to 7.9%. Participation remained steady at 62.7%, while the employment to population ratio held steady at 60.0%.
The number of individuals working part-time for economic reasons increased by 264,000 individuals, while the number of individuals working part-time for other than economic reasons increased by 525,000 individuals. Wait, Sarge... you mean to tell me that persons working part-time increased by 789,000, while net job growth is supposedly 88,000? That's exactly what I'm telling you.
Once again, there has been a sizable migration from full-time to part-time for many American workers. Of this number, 318,000 actually said it was because of tougher business conditions at their place of employment. By the way, the average workweek above is for full-time laborers. the person who gets cut from 35 hours a week to 15 does not count against the average.
Gender Unemployment Rates
- Adult Male held steady at 4.0%
- Adult Female from 3.8% to 3.7%
- Teenagers from 12.4% to 14.1%
Racial Unemployment Rates
- White held steady at 3.8%
- Black or African American from 6.3% to 6.1%
- Asian from 3.7% to 4.1%
- Hispanic of Latino from 5.3% to 5.5%
Educational Unemployment Rates
- High School Dropouts from 6.7% to 7.1%
- High School Graduates from 4.6% to 4.0%
- Some College/Associate Degrees from 3.5% to 3.4%
- Bachelor's Degree and Beyond from 2.3% to 2.5%
Note: The improving unemployment rates for high school graduates and those with some college and worsening unemployment rate for those with college and graduate degrees implies that higher-paying jobs are being lost and lower-paying jobs are being created. This will undoubtedly throw kerosene on the political fire that is the student debt crisis.
My Thoughts
I see this as another rather weak monthly economic report. The fact that job creation was stronger in the Household Survey than in the Establishment Survey makes this report stronger than it would otherwise be. Still, full-time employment is still ebbing and having a strong educational background appears to no longer be the tailwind in kicking off a career that it has historically been.
This may or may not put the size of the already-penciled-in (by the markets) September 18, 2024 FOMC rate in some jeopardy. While it's clear that the market has become like a junkie, begging for its next fix, I have not seen much movement in fed funds futures trading on Friday morning. The U.S. Dollar Index has actually strengthened since this release, and U.S. treasury yields have gyrated.
Those futures markets, though? Right now, they are pricing in a 61% probability for a 25-basis point rate cut and a 39% likelihood for a 50-basis point rate cut. That said, the path toward easier money looks more aggressive down the road. There is now an 88% likelihood for 100-basis points worth of rate cuts by the end of this year and a 67% probability for 200-basis points worth of rate cuts by May 2025.
I hate to say it, but this market is starting to price in an economic calamity. Let's hope for you, me and our children that this is not the case. Don't forget... August CPI is coming on Wednesday. Always faithful.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
