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Even before the utter chaos of the new Administration in Washington, my focus had been on whether the economy would have a “soft” or “hard” landing, i.e., recession. Last month I said that the report virtually screamed “Hard Landing!!!” 

If so, this month’s report added the sound of a crash with explosions. Almost everything about this report with the exception of the headline number indicated a recession is imminent or at least close.

Below is my in depth synopsis.
 

HEADLINES:

• 22,000 jobs added. Private sector jobs increased 27,000. Government jobs declined -6,000. The three month average declined sharply to +29,000, well below the breakeven point necessary with any kind of population growth.
• The pattern of downward revisions to previous months continued. June was revised downward by -27,000 to a *decline* of -13,000, while July increased 6,000 to +79,000, for a net declined of -21,000. 
• The alternate, and more volatile measure in the household report, rose by 288,000 jobs. On a YoY basis, this series increased 1,969,000 jobs, or an average of 164,000 monthly.
• The U3 unemployment rate rose 0.1% to 4.3%. Since the three month average is 4.2% vs. a low of 4.0% for the three month average in the past 12 months, or an increase of 0.2%, this means the “Sahm rule” is not in play.
• The U6 underemployment rate rose 0.2% to 8.1%, a new 3.5 year high.
• Further out on the spectrum, those who are not in the labor force but want a job now rose by 179,,000 to 6.354 million, its highest level since July 2021.
   

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. For the second month in a row they were sharply negative:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, was fell -0.2 hours to 40.9 hours, and is down -0.7 hours from its 2021 peak of 41.6 hours.
• Manufacturing jobs decreased by -12,000, the fourth decline in a row. This series declined sharply in the second half of 2024 before stabilizing earlier this year. It is now at a 3+ year low.
• Truck driving, which had briefly rebounded earlier this year, declined another -900.
• Construction jobs fell -7,000.
• Residential construction jobs, which are even more leading, declined -900. This is the 5th decline in a row for this important series.
• Goods producing jobs as a whole declined -25,000. This is now the 4th decline in a row, which is very important because these jobs typically decline before any recession occurs. Further, on a YoY% basis, these jobs are now negative by -0.2%. Only three times in the past 70+ years - 1952, 1967, and 1984 - has this series been more negative YoY than this without it being during or shortly before a recession. 
• Temporary jobs, which have declined by over -650,000 since late 2022, declined again this month, by -9,800, a new post-pandemic low.
• The number of people unemployed for 5 weeks or fewer rose 177,000 to 2,476,000, its highest level in 3.5 years.
   

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.12, or +0.4%, to $31.46, for a YoY gain of +3.9%, close to its lowest YoY% gain in 4 years set last month. Nevertheless, this continues to be well above the 2.7% YoY inflation rate as of last month.
   

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers was unchanged, but is up 1.0% YoY, about average for the past two years.
• The index of aggregate payrolls for non-managerial workers rose 0.4%. It is now up 5.0% YoY, about average for the past 18 months. 
   

Other significant data:

• Professional and business employment declined another -17,000. These tend to be well-paying jobs. This is the fourth decline in a row, and is the lowest number in over 3 years. It is also lower YoY by -0.2%, which in the past 80+ years - until now - has almost *always* meant recession. This is vs. last spring when it was down -0.9% YoY.
• The employment population ratio was unchanged at 59.6%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate increased +0.1% from last month’s 2.5 year low to 62.3% , vs. 63.4% in February 2020.
   

SUMMARY

This was probably the worst report, including last month’s, since the 2020 pandemic shutdown months.

The *only* bright spots in addition to the positive headline number were the YoY increase in average hourly earnings and in real aggregate nonsupervisory payrolls, an excellent short leading indicator for continued economic growth, which likely another new all-time high once we find out about inflation last month.

Everything else was negative: all of the leading indicators in the goods producing sector, plus temporary and professional jobs. In particular, residential construction jobs, typically one of the last shoes to drop in that sector before a recession begins, declined further. And more broadly, goods producing jobs as a whole continued their significant downward turn.

Additionally, both unemployment and underemployment increased. Further out on the spectrum, once again those not in the labor force but who want a job increased to the highest level in 4 years. And the icing on the cake was the revised negative June payrolls number, the first negative print since 2020.

Last month I concluded that “We are now a hair’s breadth away from ‘recession watch.’” Last month’s ISM reports confirmed that, but then they rebounded in August. But with this report, the “recession watch” is back on. In fact, depending on how other short leading reports come in later this month, it may need to be upgraded to a “recession warning.”

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