July Jobs Report: Supply and Demand Fall Back, Leading to Fewer Workers and Fewer Jobs
July Jobs Report: Supply and Demand Fall Back, Leading to Fewer Workers and Fewer Jobs
TheJuly Employment Report solidified that the labor market is not out of the woods quite yet. With a loss of 23K jobs in July, and downward revisions to both of the prior two months, the upward momentum of job growth from the spring has slowed markedly. Price volatility may be contributing to increased hesitation from employers. With job opportunities remaining scarce, more workers are exiting the labor market entirely. Unemployment dropped to 4.1%, but labor force participation fell by 264K people, down to 61.4%. A large drop in teen unemployment, and the populations of reentrants and new entrants signals that this change is due to people on the margins stepping aside until opportunities become more plentiful. Those with a job are still seemingly staying put.
Job losses
The Government sector was once again leading the losses, with 53K jobs lost in July, mainly in government education, which lost 50K jobs on its own. Outside of this loss, the private services and goods producing sectors both posted small positive gains.
Consumer spending is still driving hiring decisions in Leisure and Hospitality and Retail, with jobs down 40K and 19.4K respectively. Headline consumer spending remains elevated, which is largely influenced by high-income households. As inflation persists, the bulk of the US consumer base is facing increasing price pressures that are causing a pull back in discretionary spending, and these areas are often the first cut.
Financial Activities also continued to decline, now down 121K from the recent peak of employment last spring.
Job gains
Skilled trades (Construction and Durable Goods Manufacturing) posted strong gains (up 22K and 18K respectively) in July.
Health Care and Social Assistance added 22.6K jobs, positive but lower than has been typical.
Labor force dynamics
Unemployment dropped to 4.1%, which seems like good news at first. But with a loss of jobs in the month, and slower than previously reported job growth in the months prior, this is actually a sign that more people are leaving the labor force than actually moving back into employment.
Those not in the labor force increased by 381K in July, and it seems most of those movements come from people who were on the margins of the labor force stepping back from job search.
Teen unemployment dropped by 2.5pp down to 12.1%, likely as many stopped looking for work
New entrants and reentrants to the market declined by a combined 125K
Marginally attached workers (want a job, not looking within the last 4 weeks) is up by 45K
Manufacturing overtime hours are down slightly in July as employer demand might be showing early signs of slowing, but it's a small movement over a single month, so nothing to hang our hats on yet.
Wages and hours
Wage growth is slowing, now at 3.2% year-over-year. As inflation remains volatile, slowing wages may cause a rise in affordability concerns among workers.
Workweek hours stayed stable at 34.3, but there was an increase of 123K workers who are part-time for economic reasons, meaning full-time work is still not available to all those who want it.
Takeaway
The labor market is still in a stagnation period, as both the supply of workers and demand for labor are pulling back. Macroeconomic influences are shaping the speed and direction of labor market movements from both sides, and until there is more clarity for the road ahead, namely with prices, job growth may remain muted.