By Andrew Moran
Investors called the July jobs data a Goldilocks report. It was not too hot or cold but just right for the Federal Reserve and the financial markets. The headline figure fell short of economists’ expectations, with 187,000 new jobs last month.
However, upon delving into the Bureau of Labor Statistics’ (BLS) monthly employment report, analysts discovered concerning trends that shed light on the current state of the U.S. labor market.
The Decline of Full-Time Jobs
Full-time employment levels plunged by 585,000 in July to 134.274 million. This was the largest monthly decline since the COVID crash, which saw 14.7 million full-time jobs vanish.
Part-time employment, which is defined as people who work less than 35 hours per week, skyrocketed last month. Part-time jobs soared by 972,000 to 27.153 million.
Moreover, the number of people employed part-time for economic reasons remained the same at 4 million. This metric examines individuals who would have preferred full-time employment but have seen their hours slashed or cannot find full-time positions.
“One area of disappointment within the household employment survey is that the strength was driven by part-time jobs,” said James Knightley, the chief international economist at ING, in a research note. “The household survey shows part-time employment rose just under 1mn last month while full-time employment fell nearly 600k. So while wage growth apparently remained robust, swapping full-time workers for part-time workers is in aggregate going to lower household incomes.”
While economists try to avoid focusing too much on a single data point, they assert that significant increases in part-time work typically occur in recessions. According to the Federal Reserve Bank of San Francisco, the rise in part-time employment results from a “cyclical reduction in labor demand that reduces hours worked along with increasing the unemployment rate.”
So, an upward trend in part-time employment levels can function as a recession indicator.
That said, part-time jobs remain slightly below the pre-pandemic level of 27.828 million.
Employment in temporary help services maintained its downward trend, falling 22,000 in July and is down by 205,000 since the March 2022 peak.
In recent months, market experts have weighed in on the general slide in temp jobs, warning that if the employment levels drop below 3 million, it could be something to worry about. Historically, a sizable decrease in this corner of the labor arena has typically occurred before recessions.
According to new data from Challenger, Gray & Christmas, Inc., U.S.-based employers announced nearly 24,000 job cuts in July. And in the first seven months of 2023, employers have announced plans to slash approximately 482,000 jobs, the highest January-to-July total in three years.
Government Jobs Rising
The BLS reported that government payrolls climbed 15,000 in July. While this was the slowest growth since December, government jobs increased by 370,000 in the first seven months of 2023, accounting for more than 20 percent of employment gains this year.
Government payrolls have also outpaced other industries, including professional and business services (170,000), health care (271,000), and leisure and hospitality (178,000).
The government is expanding and will account for a significant portion of job creation in the U.S. economy in 2023.
This trend is alarming, according to economist Stephen Moore. The hiring for federal, state, and local governments this year is more “than any industry in America,” he noted in a newsletter on July 25.
“It was more than mining, manufacturing, construction, wholesale, and transportation combined,” he complained. “Wait. With the federal government running a $2 trillion annual deficit and with the COVID crisis long ago behind us, shouldn’t we be systematically downsizing?”
President Joe Biden is poised to add 82,000 employees to the federal government payrolls in the fiscal year 2024. This would be a 3.6 percent increase from the previous year.
“As leaders in the Biden-Harris Administration’s efforts to strengthen and empower the Federal workforce, our number one mission is to equip Federal agencies with the necessary resources to attract, hire, develop, and retain talented workers to make our government more efficient, resilient, and effective, while positioning the Federal government as a model employer,” the White House wrote in a March blog post. “As we release the President’s FY 2024 Budget, we are proud of the mission-driven investments it makes in the federal government’s most important asset—our people.”
The current administration aims to grow staffing levels at the Treasury Department, Veterans Affairs, the National Park Service, the U.S. Department of Agriculture, the Labor Department, the Justice Department’s Antitrust Division, and the Federal Trade Commission.
Revise and Consent
The revisions are one aspect of the July jobs report that garnered plenty of attention on August 4.
The June jobs data was revised down by 24,000 to 185,000. The May payroll numbers were also revised down by 25,000 to 281,000. So far this year, every month has seen downward changes to the employment figures.
The last time the U.S. economy witnessed six consecutive months of downward revisions outside of recessions was at the peak of the housing bubble in September and October 2007, noted Tavi Costa, a macro strategist at Crescat Capital.
BLS researchers revise their previous estimates once they receive additional information unavailable at the time of the initial publication. But some speculate that the initial headline figure makes the news and allows the high-frequency trade algorithms to push equities higher, while the lower revisions hardly generate mainstream attention and are forgotten about by the voting public.
The New Normal
The state of the U.S. labor market is a mixed picture. Some will contend it is beginning to cool off, while others purport it remains incredibly tight.
“We anticipate that monthly payroll gains will continue to slow and that negative readings are likely in early 2024,” the Conference Board said. “Relatedly, the unemployment rate is likely to start ticking higher also in early 2024 and rise to 4.2 percent, which is about 700,000 job losses.”
Curtis Dubay, the chief economist at the U.S. Chamber of Commerce, says the worker shortage persists and is proving to be a significant challenge for employers.
“The labor market remains tight. Hiring in June remained at the same level as in May, and quits dropped slightly,” Mr. Dubay wrote. “Businesses are still adding workers, and workers are still confident they can quit their current jobs and find better ones easily.”
Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, told Bloomberg Television that the economy is slowing down “in a fairly orderly way,” and the July jobs report proves it.
