Scenes from the June jobs report: a weak but improving economy
– by New Deal democrat
There’s no important new economic news today, so let’s take a somewhat deeper dive into last Thursday’s employment report for June. To cut to the chase, this is of a piece of my “Big Picture” narrative from Friday in which I wrote that most of the signals suggest and economy coming out of a weak patch rather than going into one.
Let me start with a comparison of the typically leading manufacturing and residential construction sectors vs. services, which sometimes barely decline at all during recessions. Here is the historical look from 1982 to just before the pandemic:
Typically before a recession in a single month 100,000 jobs or more would be lost from manufacturing (red), and 10,000 or more lost from residential construction (orange), while service providing jobs (blue) would only start to decline once the recession had begun.
By contrast, as shown in the post-pandemic graph below, manufacturing’s biggest monthly decline was 60,000 in late 2024. That sector has recently shown more monthly *gains.* Residential construction’s biggest monthly decline has been less than 6,000 last August and this May. Service producing jobs have increased every month since January:
Not only have manufacturing jobs increased in recent months, but take a look at one of the 10 “official” leading indicators, average weekly hours worked in manufacturing jobs:
This metric has increased sharply in the past 24 months, and is now tied with its post-pandemic high. There has never been a case of a recession with manufacturing hours so strong.
And the YoY change in total payrolls bottomed last winter, and has increased gradually since:
Total YoY employment gains are still very weak, but the negative trendline appears to have been broken.
Next, there has been much comment about the decline in the employment-population ratio and the labor force participation rate in recent months. But a closer look at each indicates that in the prime age 25-54 year demographic (red in the graphs below), there has barely been any decline at all. First, here’s the labor force participation rate:
And here is the employment-population ratio:
This looks very much like the tail end of the large Boomer generation shuffling off into retirement and thus skewing the comparisons, rather than a generalized weakness. The sudden dropoff in June looks like noise that may be revised next month.
Finally, let me update two statistics that I cite almost constantly. First, almost every week I point out that jobless claims (blue in the graph below) have had a 60 year history of leading the unemployment rate. In the past few months, it appeared that the unemployment rate (orange in the graph below) had stalled. But when we carry the comparison out another decimal point, by disaggregating the unemployment rate into the number of people unemployed divided by the civilian labor force (red), the gradual decline this year becomes apparent:
I expect we will see a further decline in the unemployment rate (at least as decomposed) before it bottoms perhaps several months from now.
And last of all, here is the updated graph of aggregate nonsupervisory payrolls (red), together with its component parts: total hours worked in the economy (gold) and average hourly earnings (blue); compared with the inflation rate (black), all normed to 100 as of 12 months ago:
While total hours have barely budged since last November, average hourly pay has more of less kept even with monthly inflation, except for the Iran war spike. We won’t get June’s inflation number until next week, but the Cleveland fed estimates it will come in just below 0, rounding to -0.1%. Since last June rounded upward to +0.3%, the YoY inflation rate is likely to decline roughly -0.4% to 3.8%. Since aggregate nonsupervisory payrolls also declined -0.1% in June, this means that real aggregate nonsupervisory payrolls YoY will remain higher by 0.7% — very weak, but not recessionary.
“Scenes of strength and weakness from the May jobs report,” Angry Bear by New Deal democrat