Jobs Report: The Labor Market Has Deteriorated
Jobs Report: The Labor Market Has Deteriorated
There are two main takeaways from today’s Jobs Report. The first is that labor markets in the private sector excluding healthcare and social assistance have deteriorated rapidly and are now anemic. The second is that American households are feeling the effects.
The economy added 114K jobs overall, much fewer than expected, but only 33K in the private sector outside of healthcare and social assistance. That 33K figure is about 75% lower than the 137K monthly average in 2015-2019. The diffusion index, a measure of the breadth of job gains, fell below 50, signaling that more industries lost jobs than gained jobs. Notable losses occurred in the information sector, professional and business services, and financial activities—sectors known for creating higher-wage, higher-quality jobs.
| Change in Private Sector Payrolls, Excluding Health Care and Social Assistance | |||
|---|---|---|---|
| 1-month change | 3-month average | 12-month average | 2015-2019 average |
| 33K | 75K | 82K | 137K |
Here are some highlights from the report:
A temporary decline in demand for labor: The number of workers on temporary layoff rose 249K and the average workweek declined to 34.2 hours. When businesses are stressed, they often cut workers’ hours and put workers on furlough before cutting jobs outright. That suggests that much of the current weakness is temporary, and that normalizing interest rates could result in workers getting their jobs and hours back. The converse is also true: that several more months of restrictive interest rates could see these temporarily laid-off workers become what the U.S. The Bureau of Labor Statistics calls “permanent job losers.”
Slowing wage growth: YoY wage growth slowed from 3.9% in June to 3.6% in July. Theoretically, wage growth should ideally compensate workers for inflation (which has clocked in at 3.0% over the year) and reward workers for productivity growth (which was reported to be 2.3% over the year earlier this week). Far from receiving a 5.3% wage boost, however, workers have seen wage growth slow. ZipRecruiter’s survey of recent hires also shows a decline in the share of newly hired workers getting raises, signing bonuses, and benefits.
Rising unemployment and underemployment: The unemployment rate rose to 4.3% (the highest since 2017 outside the pandemic recession), from 3.5% a year earlier. The expanded unemployment rate that includes marginally attached workers and those who are working part-time for economic reasons rose to 7.8% (the highest since 2018 outside the pandemic recession), from 6.7% a year earlier. Those figures have risen rapidly in recent months, with the unemployment rate triggering the Sahm Rule—a statistical regularity showing that a 0.5 percentage point increase in the 3-month moving average of the unemployment rate above its 12-month low tends to signal a recession. This time may be different, of course. Some of the increase in the unemployment rate was normalization from an unusual, unsustainable, and inflationary low. But the labor market is clearly no longer normalizing. Further deterioration could set off a negative cycle of job losses, consumer spending declines, business revenue declines, and more job cuts.
Take a tour through the Jobs report in ZipRecruiter charts.
