IS THE LABOR MARKET STILL GOING STRONG?
By: J Scott
It's probably no surprise that one of the biggest driving factors of the overall economic landscape is jobs and employment.
Last week, the Bureau of Labor Statistics (BLS) put out their monthly jobs report, detailing the strength of the labor market and the unemployment rate(s).
On the surface, the data looked very promising: Over 528,000 jobs were added in July (compared to 228,000 expected) and the unemployment rate ticked down to match the lowest in history at 3.5%. Reading those numbers as a headline would lead anyone to believe that US employment continues to be strong, and Americans continue to thrive from a jobs perspective.
Unfortunately, a little digging into the report and the non-headline numbers provides a more sobering view of the US labor market heading into August.
DIGGING INTO THE JOBS REPORT
Here’s a bit more detail from the report itself:
* While it can be difficult to get the exact change in numbers of full-time and part-time job holders (since the government uses different data and surveys to determine these numbers), it appears that the number of full-time jobs declined in July by about 71,000 and the number of part-time jobs increased by about 384,000, with the number of people who took a second part-time job increasing by about 92,000.
Again, this doesn’t add to the 528,000 total, simply because these numbers rely on household surveys, as opposed to employer reported data (which doesn’t contain this info). Long story short, a lot of people are picking up part-time jobs to help pay the bills, and a decent number are picking up a second (or third) part-time job. Full-time jobs were reduced in July, which confirms what a lot of people have suspected – there have been a net increase in layoffs.
* The Labor Force Participation Rate (basically, the percentage of the population working or looking for work) ended at 62.1%. This is about 1.2% lower than where it was in February 2020 (pre-Covid). This means that we still have several million people fewer than pre-Covid who are working or looking for jobs. Did they retire? Taking time off? Are they gig workers? Day traders? Or did they simply give up on trying to find work for the time being? We don’t know, and it’s likely a combination of all these things. And this number has been decreasing since March.
* Just over 300,000 people took part-time work because they needed extra money, either because their hours were cut or because of general economic reasons. These are people who would have preferred full-time work, but were unable to find full time jobs. The increase was about 7% from the preceding month, which is a big jump, but the total number of these workers was only 3.9 million, compared to 4.4 million in February 2020. In other words, we’re seeing more economic instability over time, but it appears that we were already headed in that direction pre-Covid.
* About 5.9 million people are currently not in the labor force, but would like a job. This tranche of people were not counted as unemployed because they were not actively looking for jobs and were not collecting unemployment. This is compared to 5.0 million people in February 2020. This is likely a result of people who have given up on finding a job that is acceptable to them, or in some cases, people who have determined that it is more lucrative not to work (for example, someone who would likely make $15/hour, but would have to pay $15/hour for child care, making it less lucrative to work than to stay home).
* The unemployment rate dropped from 3.6% to 3.5% to match the February 2020 number, but if you add in “marginally attached workers” (which are basically discouraged workers – those who had looked for a job in the past year, couldn’t find one, and stopped looking), the percentage jumps to 10.2%. Compared to 8.4% back in February 2020. Again, an indication that there are a number of people who want to work, but who can’t find a job they find suitable, for whatever reason.
ADDING IN SOME CONSUMER CREDIT/DEBT DATA
In addition to the jobs report, here are a couple other data points around credit availability and usage that tie into the narrative we’re seeing:
* Available consumer credit increased by more than 10% in June (we don’t yet have July numbers), after increasing 6.5% in May. This isn’t the total amount of outstanding debt, but the total amount of credit. In other words, people are taking HELOCs, adding credit cards or increasing credit card limits, even if they’re not yet spending that money. 233 million credit cards were opened in Q2, the most since 2008. People are preparing for additional credit needs.
* In terms of credit actually owned/owned, that increased 1.3% in June (again, no July numbers yet). So, people are borrowing more, not just opening credit lines.
My takeaway from this data is that things are still not looking like a recession (from a current data standpoint0, but we’re quickly headed in that direction. Both jobs and credit data indicate a tipping point, and things could move downhill quickly and decisively, despite things still looking pretty decent on the surface.