August job growth came in at 187,000 new jobs, but there were also 110,000 downward revisions.
[Note: If you wish to skip detailed analysis and data support, simply scroll down to “Opinion and Outlook” and “GDP Prognostication.”]
The August Jobs Report: Revisions and Insights
The August jobs report was released this morning, showing 187,000 new jobs, the same as July’s initial figure. However, the July number was revised down by 30,000, continuing the trend of significant downward revisions in recent months. In fact, the revisions for June and July combined resulted in a decrease of 110,000 jobs. The June report also had a massive downward revision of 110,000 for April and May. Additionally, the revised July numbers brought down the May and June figures by another 49,000.
But let’s dive into the exclusive schedule of August and July Jobs Creation by Average Weekly Wages.
(Source: “August and July Jobs Creation by Average Weekly Wages by Sector” The Stuyvesant Square Consultancy 2023, used by permission)
In terms of job growth, we continue to see most of it in government-supported and subsidized sectors like education and health services, which are less affected by economic cycles. On the other hand, more cyclical sectors such as transportation, warehousing, information services, and professional and business services have shown declines or sluggish growth. Temporary help services, which are usually a minor factor in job creation, have lost an average of 26,000 jobs each month for the past three months. This decline in temporary help services often serves as an early indicator of an economic slowdown.
The unemployment rate rose by 0.3 percentage point to 3.8 percent in August, with 514,000 more people becoming unemployed, bringing the total to 6.4 million. When considering real wages adjusted for inflation, the aggregate increase was a mere 1.05 percent, calculated after accounting for the July trimmed mean inflation rate of 4.1 percent. A detailed breakdown by sector will be provided in our next report.
Other Data Points
The Institute for Supply Management’s Manufactuer’s Purchasing Managers Index (PMI) for August, released this morning, showed the industrial economy is contracting, but at a slower pace compared to last month. The index stood at 47.6, slightly higher than July’s 46.4. (A reading below 50 signals contraction.) On the other hand, the ISM Services Index for July, the latest available, indicated expansion in the service economy, albeit at a slower rate, with a reading of 52.7 compared to June’s 53.9. (The August Services report will be released on Sept. 6.)
The Job Openings and Labor Turnover Survey (JOLTS) for July, reported on Aug. 29, continued its decline, revealing 338,000 fewer job openings compared to June, along with 253,000 fewer separations. This ongoing decline in job openings is evident in the chart below, showing a significant drop from the peak of 12,027,000 in March 2022 to 8,827,000 in July 2023.
We believe that the long-anticipated recession has impacted hiring practices, resulting in fewer job openings. Consequently, the predicted recession, which would typically lead to layoffs, might instead result in a so-called “soft landing.”
Building permits in July, released on Aug. 16, were at a seasonally adjusted annual rate of 1,442,000. This represents a 0.1 percent increase from the revised June rate of 1,441,000 but is 13.0 percent lower than the July 2022 rate
of 1,658,000.
Privately owned housing starts in July were at a seasonally adjusted annual rate of 1,452,000. This is 3.9 percent
(±16.0 percent) higher than the revised June estimate of 1,398,000 and 5.9 percent (±16.1 percent) higher than the July
2022 rate of 1,371,000.
For July, personal income and outlays, released on Aug. 31, showed that disposable personal income remained unchanged in current dollars and decreased by -0.2 percent in chained 2012 dollars. (“Chained dollars” is a measure of inflation that considers changes in consumer behavior in response to price changes.) Personal income in current dollars increased by 0.2 percent. Since January 2021, real disposable personal income per capita has declined by over $3,000 due to inflation and economic factors.
The July Personal Consumption Expenditures (PCE) Index (excluding food and energy), released on Aug. 31, is reported to be the Federal Reserve’s preferred measure of inflation. It showed a slight increase to 4.2 percent from 4.1 percent. The PCE inflation, also known as “headline inflation,” stood at 3.3 percent, up from June’s 3.0 percent. This spike could indicate the possibility of further rate increases by the Fed.
The IBD/TIPP Economic Optimism Index for August, released on Aug. 8, fell by 2.4 percent to 40.3. A reading below 50 indicates pessimism.
Opinion and Outlook
Trustworthy Numbers?
I’m deeply concerned about the significant downward revisions in jobs data, with two consecutive months seeing revisions in the six-figure range. This should be a matter of concern for Congress as well. It raises questions about the accuracy and reliability of the Bureau of Labor Statistics (BLS) data. In our view, these substantial overstatements of jobs creation may be part of President Joe Biden’s reelection campaign’s efforts to portray “Bidenomics” in a positive light. While Friday jobs reports often make headlines and impact markets, the revisions, which are typically much smaller, tend to receive less attention.
It’s worth recalling that in October 2012, General Electric CEO Jack Welch raised allegations of manipulation in BLS jobs data, claiming they were made to appear better than they actually were. The September 2012 Jobs Report, released just before the November elections when Barack Obama faced Mitt Romney, held significant influence. Welch faced criticism from the media for his claims, with reminders that BLS statisticians are career public employees who are supposed to be above political influence.
However, it later emerged that Welch’s suspicions were not unfounded. A U.S. Census employee had indeed falsified data for the Household survey, which was used to calculate the unemployment rate. Furthermore, New York Post business columnist John Crudele reported that “a knowledgeable source says the deception went beyond that one employee—that it escalated at the time President Obama was seeking reelection in 2012 and continues today.” Crudele provided his source and supporting evidence to the Labor Department’s inspector general, but reported that his calls went unanswered. The establishment media then criticized Crudele for what they deemed a “reckless” story.
Given these prior claims from the current administration, it is reasonable to approach the jobs data with caution.
That being said, with the latest revisions, the average three-month jobs creation stands at 150,000 new jobs. While not bad, it falls within the range typically considered necessary to accommodate population growth.
More concerning is the slowdown in jobs creation indicated by the JOLTS report and the overall economic slowdown reflected in the ISM Manufacturing Index. The pace of growth is certainly decelerating, but at a moderate rate. As shown in the JOLTS chart above, we may be heading towards
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