This morning, the Bureau of Labor Statistics (BLS) released “The Employment Situation – July 2025.” In it, the BLS reported the U.S. economy created 73K net, new payroll jobs, and the unemployment rate ticked up slightly, to 4.2%. On its face, despite the historically low unemployment data, it doesn’t get much more mediocre than that.
However, the unexceptional headlines covered up an exceptionally bad report.
No, July’s jobs data was nowhere near as bad as the disaster in April 2020. Remember that? When the powers that be effectively shut down most of the economy, and businesses shed over 20 million payroll jobs? Yeah, clearly it wasn’t THAT bad.
But, it wasn’t good. At all.
First, the BLS made some substantial revisions to previously released data. Instead of my trying to phrase it correctly, I am simply going to copy and paste it here:
“Revisions for May and June were larger than normal. The change in total nonfarm payroll employment for May was revised down by 125,000, from +144,000 to +19,000, and the change for June was revised down by 133,000, from +147,000 to +14,000. With these revisions, employment in May and June combined is 258,000 lower than previously reported.”
So, where the rubber meets the road, for now, the BLS is claiming the economy has actually created only 105K net, new payroll jobs over the last 3-months. Obviously, that is 35K/month, which isn’t enough to absorb a normal increase in the population/workforce.
For instance, over the last 12-months, the BLS estimates the working-aged “civilian noninstitutional population” has increased from 268,644K in July 2024 to 273,785K in July 2025. Obviously, that is an increase of over 5 million people. Further, the “civilian labor force,” those people actually looking for work, has grown in excess of 2 million, from 168,315K to 170,342K.
Clearly, 2 million over a full year is a lot more than 35K/month.
However, that isn’t even the worst part of the report. Unfortunately, or perhaps fortunately as the case may be, I am going to spare you and not get too “into the weeds” with the numbers. Things like the “labor force participation rate” and the “employment-population ratio” are acquired tastes. Trust me on that, and further trust me they are moving in the wrong direction.
Further, what does it say about the health of our economy and society when one of the hottest sectors for new jobs seems to be social work? After all, the BLS reported the economy created 20.6K new jobs in social assistance for “individual and family services,” or more than 28% of the total number of new payrolls.
Let’s just say the “underlying data” is NOT suggestive of a vibrant labor market to this writer, who has been overanalyzing these reports for decades.
But does any of this really surprise you? It doesn’t me.
Last week, as you might remember, I bloviated about the relative ease I had been having getting dinner reservations in both Birmingham and New York. Based on my experience this past weekend, with one exception, the surfeit of reservations was/is not an anomaly. While there were hordes of people marching up and down 5th and 6th Avenues, there were a lot of empty tables to be found in Midtown.
I know that people were eating, but they didn’t seem to be going to “sit down” restaurants to eat whatever it was.
To that end, on Friday night, there were ample seats available at our old French standby on West 55th Street. Further, they had even closed the upstairs dining room for the evening. As for lunch on Saturday, we ended up being one of 2 tables actually eating at a bistro/tavern on West 47th Street in the theater district. However, to be fair, there were 4 day-drinkers at the bar making the noise of eight people.
And our dinner that night on West 56th Street? Our restaurant was perhaps, maybe, one-third full, possible one-quarter. This was baffling to me, because we had a great experience. The escargot was the best I have had anywhere, and the burger, yes the burger, was an all-time Top 5 for me. The service and atmosphere were also top notch. So much so, I almost felt like we were on a hidden camera show.
Where were are the people? All those folks who were apparently trying to run into me on 5th and 6th earlier in the day? And, no, I wasn’t wearing any magnets, even if it seemed as though I was.
Well, they weren’t at Le Bonne Soupe, Glass House Tavern or The Consulate when I was there. It is a shame, because they were all extremely good. So, what is happening here?
Interestingly enough, the super high-end restaurants were still packed with folks last weekend, as were the pizza-by-the-slice places. Le Bernardin and Per Se? Forget about getting a table at these Michelin 3-Star eateries. Never mind their $350-400/person tasting menus. People want to go. On the flipside of the coin, they also seem to like a good “New York slice,” and who doesn’t?
But in between those extremes? The brasserie? The café? The pre-matinee tavern? You know what I mean. The sort of place where you get $20-something hamburgers, and you get to choose from a variety of cheeses. The seafood isn’t all fried, and tilapia is nowhere to be found (at least officially). Perhaps they have cloth napkins and bread plates. Maybe escargot and profiteroles sneak their way onto the menus.
I think you get the picture. The upper-end of bourgeois, or those who aspire to be such.
Based on what I’ve observed, this segment seems to be getting hit particularly hard right now. Most of you probably remember Red Lobster’s bankruptcy in 2024. But, what about TGI Friday’s? The slowdown and closures at chains like Applebee’s, Outback Steakhouse, Bonefish Grill and even Cracker Barrel?
Some of those places might not seem “aspirational” to a lot of people who read economics newsletters. However, they are for a lot of people. You see, wealth, like most things in life, is relative. Unfortunately, relatively speaking, the vaunted American middle-class is exhausted.
Consider this passage from the World Economic Forum:
Affluent shoppers may be a surprising element of Costco’s business, but they’re now a stunningly essential prop for the country as a whole. According to a recent analysis, the highest-earning 10% of Americans are doing nearly 50% of all the spending there – up from 36% three decades ago. As the well-heeled shoulder more of the weight of a consumption-heavy economy, spending by middle-class households has declined.
For proponents of “middle-out” economics, this isn’t great news. A truly healthy economy is one with a thriving middle class, they say; enabling more people to buy more things creates a broader foundation to build on.
“People like me can only own so many yachts or airplanes or what have you,” the venture capitalist who helped coin the term “middle-out” economics once wrote. “I earn about 1,000 times the median American income annually, but I don’t buy thousands of times more stuff.”
And then there is this from a number of different sites, but I am going to source AOL:
The inclination for middle- and lower-income Americans to spend as heavily as they did in recent years has gone away, according to Ted Rossman, a senior strategist at Bankrate.
Americans have been dealing with the cumulative weight of inflation over the past several years. While the pace of price increases has slowed, consumer prices overall are up 24% over the last five years, according to the Commerce Department. Average hourly wages for employees in the private sector, by comparison, are up 20%.
Household finances have also deteriorated in recent years.
According to a first-quarter survey conducted by Primerica, 69% of middle-class consumers said they believed their income was falling behind the cost of living, while 71% rated their ability to save for the future as “poor” or “not so good. “
“The rich get richer, the poor get poorer,” Rossman told BI, referring to the K-Shaped economy — a type of economic rebound where high-earners continue to add to their wealth, while lower income people face more challenges.
Eventually, this trend will likely become more apparent in the official economic data coming out of Washington. However, my anecdotes which support such a contention are too numerous to be purely anecdotal, if you catch my drift.
In short, there are undoubtedly any number of businesses who believed they had carved out a niche for themselves. These could be restaurants or some kind of retail store. It doesn’t matter. They were/are selling some variant of “affordable luxury,” under the assumption there would always be an aspirational segment of the middle-class willing to spend money on such things.
Unfortunately, during this weird stretch in our nation’s economic history, they MIGHT be learning they are somehow stuck in the middle. After all, they aren’t competing on either product/service—like renowned chefs Eric Ripert and Thomas Keller— nor are they competing on price like the seemingly ubiquitous $2/slice pizza joints which dot Manhattan.
Whew.
What’s more, and bringing it full circle, our consumer-driven economy is going to struggle IF all we are creating is 105K jobs over 3-month periods. Period. There is NO way the unemployment rate won’t start to spike up if that is all we can do. Again, period.
That is the reason why I wrote the following at the beginning of this newsletter: “… the unexceptional headlines covered up an exceptionally bad report.” Yes, it was bad., You can put 15 different shades of lipstick on that pig, and it will still be bad.
On the positive side of things, such labor market data and middle-class spending trends allow yours truly to get reservations at French brasseries across the country for whenever I want. That is until I can no longer get them, again, if you catch my drift.
Have a great weekend.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
Chief Economist
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.