Jobs Reports Shows Weakness

Weekly Labor Data Roundup

This week, we saw several important economic reports that showed evidence of weakness in the job market. This is likely to give the Federal Reserve the cover to not consider a rate hike in the near future. This week saw the Job Openings and Labor Turnover (JOLTS) report for June, ADP’s July Employment report, and the Challenger Job Cut report. The highlight of the week was the Bureau of Labor Statistics Non-Farm Payroll ((BLS) report for July. 

Mortgage rates still are hyper-focused on the geopolitical turmoil in the Middle East and its impact on energy and other prices. No matter the weakness we saw in these reports, they are being trumped by those concerns.

JOLTS: Openings Show Strain

The JOLTS report for June fell 178,000 to 7.359 million, slightly lower than estimates of 7.4 million. Healthcare has been one of the leading sectors for job growth in virtually every employment report this year. Even in this sector, job openings fell to 147,000. If this becomes more consistent over the coming months, it could signal significant weakness in the job market.

Leisure and Hospitality also shed 86,000 jobs, despite the boost from the FIFA World Cup in that sector. The quits rate also inched up by one-tenth to 2%, which is still just above the post‑2014 low of 1.9% (excluding the Covid period). This suggests employees are quitting less often because fewer companies are poaching workers, reflecting weaker hiring overall.

ADP: Private Hiring Disappoints

We saw softer than expected data in private payrolls when ADP released their July employment report. It showed that 44,000 jobs were created, weaker than the 70,000 that was estimated. The previous report was also revised slightly lower. Most of the jobs were in Education/Health Services.

Since the beginning of the year, two thirds of the job openings have been in this area. All other job sectors only averaged a total of 25,000 jobs per month. This isn’t a sign of a strong labor market since Healthcare growth is mostly due to an aging population in the Baby Boomer generation.

Other Indicators Flag Cooling Jobs

There were a couple other less followed reports. Revelio Labs showed 79,000 jobs were created in July with 28,000 coming from the healthcare indsutry. ISM also released their services sector report, showing that their employment component fell from 51.2 to 47.4. Not that it is back under 50, it signals contraction. ZipRecruiter, one of the largest job posting sites, released their earnings and said that the labor market in Q1 was stable, but Q2 is more subdued. They pointed to a near 15-year low in hires and quits.

Deflationary Labor Costs

Productivity and Unit Labor Costs were also released this week. This is important because as productivity increases, the cost for labor declines and this is deflationary. Productivity for Q2 rose by 1.4%, much stronger than the 0.6% expected. Q1 productivity was revised higher by 0.5%. This productivity caused the unit labor costs to rise only by 1.3%. The market was expecting 2.1%. Q1 unit labor costs were also revised lower by 0.5%.

BLS Payrolls: Jobs Turn Negative

The BLS Jobs report often deviates from the other employment reports, as we have discussed frequently. Thankfully, the July report was in line with the rest of this week’s data and showed weakness in the labor market. It showed a loss of 23,000 jobs, while markets expected an increase of 80,000 — a 103,000 miss.

In addition, revisions from the prior two months removed another 103,000 jobs. We discussed last week that several Fed members pointed to the need for rate hikes due to the strengthening labor market. This report just poured cold water on that.

Unemployment Rate Falls For Wrong Reason

The Household Survey showed the unemployment rate moving down from 4.2% to 4.1%. That sounds like great news for labor markets! Actually, it’s really bad news.

The unemployment rate is the number of people unemployed divided by the number of people in the workforce. If the number of unemployed people declines, that’s good news and a reason to celebrate when the unemployment rate falls. Unfortunately, that isn’t what happened here.

This report showed a loss of 87,000 jobs for the month and also showed that 264,000 people left the job market. Since May, there have been 700,000 jobs lost and about 1 million people have left the job market. The labor force participation rate fell to 61.4%, a level not seen in over 5 years. The unemployment rate has dropped from 4.3% to 4.1% because of this exodus from the labor market.

Wages Soften, Helping Inflation

There was additional weakness in the report. The job mix isn’t good. There were 106,000 full-time jobs lost and 138,000 part-time jobs gained. Wages also were weaker than expected. Average weekly earnings, which measures actual take home pay, fell from 3.8% to 3.5%. This is good news for inflation and mortgage rates loved the report.

Looking Ahead: Next Week’s Key Data Releases

• Tuesday, August 11: ADP Weekly, Existing Home Sales
• Wednesday, August 12: Consumer Price Index (CPI), 10-year Treasury Auction
• Thursday, August 13: Jobless Claims, Producer Price Index (PPI)
• Friday, August 14: Retail Sales