On Friday, the Bureau of Labor Statistics (BLS) released “The Employment Situation – August 2024.” To say this was one of the most widely anticipated economic reports in recent memory would be an understatement. Conventional wisdom was it would be the deciding factor in whether the Federal Reserve cuts the overnight rate by 0.25% or 0.50% at its upcoming Federal Open Market Committee (FOMC) meeting.
Even after the weekend, I am still a little baffled by it. However, the more I dig into the information, the worse it seems to get. So much so, I will just go ahead and say it wasn’t a very good report. In fact, if I were on the FOMC, I would be loud and uncompromising about the need to make a 0.50% cut when the next meeting concludes on September 18th.
To be sure, the headlines didn’t look all that awful. The BLS estimated the U.S. economy created 142K net, new payroll jobs during August. Of these, 118K were in the private sector. Further, the official Unemployment Rate fell from 4.3% to 4.2%, and “average hourly earnings” were up more than expected. So, what is not to like? That all seems reasonable, doesn’t it?
As with most things, the devil is in the details.
- Of those 118K private sector jobs, 34K were in construction, and this was arguably the highlight of the release.
- Another 47K were in the “private education and health services” segment, and 46K came from “leisure and hospitality.”
- I will save you the trouble of pulling out your calculator, that is a total of 127K, meaning the rest of the private sector actually shed jobs last month.
Breaking it down even more, and asking a question, does the U.S. economy really need an additional 29.9K people working in “food services and drinking places?” After all, a lot of the quarter’s earnings releases from publicly-traded restaurant companies weren’t exactly red hot. So, this was pretty surprising to me.
Also, we added another 18.2K “individual and family services” social assistance jobs in August. Hey, any job is better than no job. However, what does it really say about the true health of your economy and society when you are adding a disproportionate number of social workers?
Then, there was the 2-month revision to the data, which used to be a real non-event. I mean, there wasn’t any real need to pay much attention to it. Ordinarily, it wasn’t terribly significant. However, after the recent expunging of 818K payroll jobs from the official data for the 12-months ending in March 2024, folks wanted to see whether they could believe this morning’s report. Better put, they wanted to know if they could believe the last two months’ reports.
- Unfortunately, the BLS removed 86K jobs from the official data for the combined months of June and July.
- As it stands now, the economy created 118K jobs in June 2024. The original estimate was 206K, and the first revision was a negative 27K.
- As for July 2024, it now appears we only created 89K jobs that month, as opposed to the previously announced 114K.
The odds are there will be another negative revision to July’s data next month. After all, last month, the BLS revised the data down 29K. The previous month it was 111K to the bad. Essentially, over the last 4 months (April through July), which wouldn’t be included in the massive 818K “correction,” some 253K previously reported payroll jobs have vanished into the ether.
Obviously, that is 1.1 million previously announced jobs which didn’t actually exist from April 2023 to July 2024.
I won’t mince words. It is getting difficult to place too much faith in these monthly reports. Don’t get me wrong. No one expects the BLS to nail it every month. It would be impossible for it to do so. Still, that number of jobs vanishing from the official data sets over a 17-month time frame is a little, shall we say, curious.
Frankly, it brings into question the reliability of the BLS’ methodology and competency, at the least.
The Household Data
If this weren’t enough, the Household Data painted a less than beautiful picture. Sure, the official, seasonally-adjusted Unemployment Rate fell to 4.2%, and this data set suggested the economy created 168K jobs. Remember, the BLS uses the Establishment Data for the payroll numbers and the Household Data for the Unemployment Rate. That should be good news, right?
After you read the next paragraphs, I will let you decide for yourself.
- In August, there was an increase of 202K jobs for workers who have “less than a high school diploma.” For some reason, labor force for this type of worker surged 256K during the month. One would suspect difficulties in “making ends meet” as a being an issue.
- As a result, the Unemployment Rate for our most unskilled workers increased from 6.7% to 7.1%.
- By comparison, the number of potential workers who are “high school graduates, no college” increased by 119K in August. However, there were 342K new jobs for this class of worker. As a result, the Unemployment Rate for this demographic actually fell from 4.6% to 4.0%.
That is where the good news sort of stops.
- You see, there was a loss of 73K jobs for workers with “some college or associate degree,” even as the Unemployment Rate here fell to 3.4%.
- Similarly, 71K fewer people with a “bachelor’s degree and higher” found employment in August, and the Unemployment Rate for this class climbed from 2.3% to 2.5%.
Of course, not everyone reports their educational attainment in the survey. So, the numbers might not all add up neatly.
Then, there was the curious case of Table A-8. When seasonally-adjusted, the number of “wage & salary workers” in nonagricultural industries fell by 313K during August. Conversely, the number of “self-employed workers, unincorporated,” essentially meaning gig economy and other so-called contract laborers, climbed 284K.
Trust me, that is a bigger than normal 1-month jump.
Finally, at the bottom of the data on Table A-8, the BLS reported the number of U.S. workers who have part-time employment for “economic reasons,” has mushroomed from 4,220K during June to 4,830K in August. That is a 610K increase over 2-months, and all of it due to “slack work or business conditions.”
As a result, when you add it all up…the types of payroll jobs presumably created, the magnitude of the recent downward revisions, the sharp increase in part-time workers and the increase in the Unemployment Rate for more skilled workers, it is easy to come to the following conclusion. The labor market was nowhere near as strong in August 2024 as it was to start the year.
Nowhere near it.
So, where the rubber meets the road, the Fed has a choice. It can cut the overnight rate 0.25% at the upcoming meeting and accomplish next to nothing. Seriously. It will just have to just keep on cutting and cutting. Or it could make a bold move, and slash rates 0.50% or greater. Personally, I would like for it to rip off the proverbial Band-Aid, and make a 1.00% move.
And, why not? It is going to end up cutting the overnight rate probably twice that much by the time it is all said and done. Why not get it done now? Basically, the Fed will be wasting everyone’s time if it doesn’t cut rates by at least 0.50% on the 18th. Just go ahead and do it.
We shall see.
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.
John Norris
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.