July Jobs: Ugh! Yikes! Eesh! Hmmm….

Episode Summary

Executive Summary: The podcast dissects a disappointing July jobs report that showed slowing payroll growth, rising unemployment, and weakening breadth, while noting limited evidence of mass layoffs. Guests agreed the labor market is clearly deteriorating, though not yet outright weak, and debated whether the rise in unemployment reflects demand or labor-supply effects. Most expect the Fed to cut in September, but differ on whether 25 or 50 bps is appropriate and how urgent the risk of recession now looks.

Main Topics: July jobs report was broadly weak (Priority: 5/5): Payrolls rose 114,000, private payrolls just under 100,000, revisions were negative, and wage growth softened further. The panel saw little in the report to celebrate beyond a few partial offsets. Labor market is weakening, not yet clearly weak (Priority: 5/5): Speakers consistently described the labor market as deteriorating in direction, with slowing hiring and rising unemployment, but stopped short of calling it outright weak because layoffs remain limited and payrolls are still positive. Supply-side effects vs demand-side deterioration (Priority: 4/5): A major debate centered on whether the rise in unemployment is mostly due to labor supply growth, especially immigration and labor-force re-entry, or whether demand is also fading materially. Sahm rule and recession signaling (Priority: 5/5): The group explained that the Sahm rule was triggered, but emphasized it is historically a lagging rather than leading recession indicator and may be less reliable this cycle because payroll growth and layoffs do not yet fit classic recession patterns. Leading indicators and layoffs remain mixed (Priority: 4/5): UI claims, JOLTS openings, Indeed postings, and Challenger layoffs were discussed. Claims are rising but confounded by seasonal and one-off factors; openings remain above pre-pandemic levels, and layoffs are not surging. Fed policy debate: should cut sooner and faster (Priority: 5/5): Most participants argued the Fed should have cut already and should cut in September, with Mark Zandi pushing for a faster 50-basis-point easing to bring policy closer to equilibrium.

Key Arguments: Dante argued the labor market is moderating and the underlying pace of monthly job growth is probably 150,000-200,000, not the headline 114,000, but that breadth and trends are clearly worse than six months ago. Nick argued the economy is still in a decent spot in absolute terms, but the direction is concerning: diffusion measures are weaker, unemployment is rising, and the outlook suggests continued deterioration. Marissa said the report, alongside JOLTS and Challenger data, shows employers are pulling back sharply on hiring even though layoffs have not yet surged. The panel agreed the Sahm rule triggered, but emphasized it is a historical coincidence indicator, not a reliable forward-looking recession forecaster. Mark Zandi argued the rise in unemployment is mostly supply-driven, helped by immigration and stronger labor force growth, and that GDP growth is below potential rather than collapsing demand. Chris argued the probability of recession has risen but the report was not a panic moment; he still expects a September cut of 25 bps, not an emergency-style move. Nick and Marissa both highlighted prime-age labor force participation and EPOP as bright spots, suggesting the labor market has not yet broken down in a broad-based way. Several speakers argued the Fed has been too slow to cut, and that high rates risk turning a slowdown into a recession.

Data Points: Headline payroll growth: 114,000 - July nonfarm payroll job gains in the jobs report Private-sector payroll growth: Just under 100,000 - Private employment increase in July Three-month average payroll growth: About 170,000 - Smoothing effect after weak April and July readings Implied underlying monthly payroll growth estimate: 150,000 to 200,000 - Dante’s estimate of underlying trend excluding noise and hurricane effects Average hourly earnings, month over month: 0.2% - Wage growth in July Average hourly earnings, year over year: 3.6% - Wage growth slowed below 4% in July Unemployment rate: 4.3% - Rose for the fourth straight month Labor force increase: Over 400,000 - Household survey showed a strong gain in labor force Prime-age labor force participation: Highest since 2001 - 25-54 participation continued to rise Payroll survey response rate: 56.9% - Lowest July payroll response rate since 2001, possibly affected by hurricane timing Household survey response rate: 70.9% - Same as last July, suggesting less response distortion there People employed but absent due to weather: 461,000 - Household survey measure cited as evidence of hurricane impact Jobs lost in information industry: 20,000 - One of the notable July sector declines Sahm rule indicator: 0.53 - Rose above the 0.50 trigger threshold after the July report Prior Sahm rule indicator: 0.43 - June reading before July’s jump UI claims four-week moving average: About 240,000 - Claims have risen from roughly 200,000 a few months earlier Indeed job postings vs peak: Down about 25% - Indeed’s posting index has fallen from its early-2022 peak Indeed job postings vs pre-pandemic: About 12% to 13% above pre-pandemic - Current postings remain elevated relative to 2019 Three-month diffusion index: 53% - Breadth of payroll gains; lowest since March 2010 but still above 50 One-month diffusion index: Below 50 - Nick noted it signaled less broad-based industry job growth ECI private-sector wages annualized q/q: 3.4% - Q2 2024 Employment Cost Index reading cited as a key wage metric Recession probability estimates: 30% to 40% range - Panelists’ updated one-year recession probabilities after the report

Pivotal Quotes: "Ugh, a poss exclamation point." — Mark Zandi: Opening reaction to the jobs report "I wouldn't say UG, I will say yikes." — Nick Bunker: First reaction to the July labor market data "The trend is weakening. The trajectory is still towards weakness." — Nick Bunker: Assessment of labor market direction and recession risk

Implications: The labor market is cooling faster than hoped, making a Fed cut in September highly likely. If hiring keeps slowing and unemployment keeps rising, recession risk will keep climbing even without a spike in layoffs.