Economic Update: July 2024

Unlike recent months, June’s gains were concentrated primarily in health care and government, which together accounted for nearly 75% of job creation. Manufacturing and retail saw losses last month, with temporary help services featuring some of the greatest losses – down 48,900 in June. Temp help numbers are closely watched by economists as a leading indicator of where the economy may be headed. More promisingly though, after a decades-long period of decline, teen summer jobs have returned! In the highest rate of employment since 2007, over 37% of 16-to-19-year-olds held jobs last month.

And if you’re looking for signs of labor market cooling, well, you don’t have to look too hard this month. April, May and June now represent the weakest three-month stretch of job growth in the last four years. April was revised down to just 108,000 job gains, the lowest seen since last October. As a benchmark, analysts estimate the economy needs to create between 180,000 and 200,000 jobs per month to keep up with population growth, given the recent rise in immigration. What’s more, a lagging measure of employment, the Quarterly Census of Employment and Wages (QCEW), has recently suggested that jobs growth at the end of 2023 may actually be slower than has been reported in the payrolls survey. “So far, we don’t see apocalyptic signs within the labor market, but investors should be wary when the labor market is supported by government payrolls […]The downward revisions to the previous two months is consistent with an economic slowdown,” remarked Jeffrey Roach, chief economist at LPL Financial.

Unemployment has also been inching higher in recent months, ever since hitting a 50-year low of 3.4% early last year. June’s 4.1% reading, while still low, represents the highest rate since November 2021. Joblessness rose in part because while 277,000 people began looking for work in June, many of them did not secure jobs immediately. Simultaneously, long-term unemployment rose to the highest level in more than two years. And as for wage growth, average hourly earnings increased only 3.9 percent last month, the lowest reading in some time.

Aside from the jobs report, this month’s JOLTS data also offers evidence that the economy is losing some steam. Job openings have been steadily waning since March 2022. While there are 1.25 jobs for every unemployed American today, that rate was 2-to-1 as recently as January 2023. That may partially explain why long-term unemployment is now above its 2017-2019 average.

Fed rate hikes themselves are now more clearly weighing on the economy. Consumer spending, (which accounts for about 70% of all economic activity) rose at just a 1.5% pace in Q2 after growing more than 3% in the two prior quarters.

Taken all together, it’s now possible the US economy is on the precipice of cooling more drastically. A sudden and notable uptick in unemployment is a precursor to recession; a rule of thumb created by economist Claudia Sahm and often referred to as the “Sahm Rule.” “These numbers are good numbers,” observed Sahm, also a former Federal Reserve economist. “The labor market is in a good place, but it’s definitely softening […] Consumer spending is down, the housing sector looks weak — you put those pieces together and, yes, the economy is rebalancing. But the question becomes: How long will this continue?”.

“We’re not at the tipping point into recession yet, but I don’t have a lot of confidence about the distance from that tipping point” notes Guy Berger, Director of Economic Research at the Burning Glass Institute. He adds that it could prove problematic if downward jobs revisions continue to trend alongside rising unemployment, but a key indicator he’s watching for a true inflection point is prime age EPOP, which is currently holding firm.