The BLS Report Is In

Is It Legit Or Is It More Lou Costello Labor Math?

According to the Bureau of Labor Statistics June Employment Situation Report, there were 372,000 jobs created in June (strictly speaking, “total non-farm payroll employment rose by 372,000”—given that the economy still has not returned to pre-pandemic levels of employment the distinction between jobs “replaced” and jobs “created” has more than a little difference to it).

The unemployment rate was 3.6 percent for the fourth month in a row, and the number of unemployed persons was essentially unchanged at 5.9 million in June. These measures are little different from their values in February 2020 (3.5 percent and 5.7 million, respectively), prior to the coronavirus (COVID-19) pandemic.

Are these numbers credible and believable? Or are we getting yet another dose of Lou Costello Labor Math from the BLS?

Sadly, this report looks suspiciously like Lou Costello Labor Math.

What The “Experts” Predicted

Among mainstream economists and “experts”, the forecast for the June jobs report was marginally positive, with some projecting that “U.S. employers likely hired the fewest workers in 14 months in June“. Most anticipated slower job growth and a “cooler” labor market, but no actual jobs destruction.

Despite the anticipated slowdown in job growth last month, the Labor Department's closely watched employment report on Friday could ease fears of a recession that have mounted in recent days following a raft of tepid economic data, ranging from consumer spending to manufacturing.

At 372,000 new jobs, Job growth surpassed all expectations by a wide margin. Job growth is slower than in May, but the report is still well above the 250K range that had largely been forecast.

Certainly the markets yesterday were not feeling particularly nervous about the June jobs numbers, believing the current propaganda that a recession might actually be avoided (rather than acknowledging the reality that it’s already here).

Wall Street’s benchmark S&P 500 index rose 1.5% on Thursday after a member of the Fed panel that sets interest rates, James Bullard, said a “soft landing” for the economy was the most likely scenario. Another panel member, Christopher Waller, said “fears of a recession are overblown.”

“Investor recession fears ebbed,” said Robert Carnell and Iris Pang of ING in a report.

This report is throwing some cold water on market sentiments, as gives no ammunition for a return to stimulus and QE—at least, not yet. We should not forget that a preeminent desire of the markets is the Fed reducing interest rates to their prior levels; this jobs report gives them no new hope for that any time soon. As of this writing, the stock markets are slightly up for the day, after an initial morning drop.

However, while the forecast for June was far stronger than expected, a growing chorus of economists are predicting slower job growth will soon lead to an increase in unemployment. One one gets past the top level number, the internals of this report, particularly in the household survey portion, show that may already be happening.

Hiring is expected to slow and joblessness is forecasted to increase over the next 12 months, highlighting economists’ concerns about the outlook as the Federal Reserve raises interest rates in dramatic increments to cool the hottest inflation in four decades.

Alt-media site ZeroHedge took a far more grim view of the labor situation yesterday. Emphasizing such information as the June Challenger, Gray, & Christmas Job Cuts Report as well as Big Data metrics such as Google Mobility data, the alternative financial publication speculated on the possibility of there being significant job loss (as many as 1 million jobs gone), rather than just slower job growth.

High-frequency data on the labor market generally indicate weakness in June employment, with all three indicators consistent with an outright decline in seasonally-adjusted payrolls, averaging well over 1 million jobs lost in June! However, we note that these signals significantly understated BLS payroll growth in both April and May, which is why economists tend to place less weight on them for this report. Of course, one day they will be right...

This time around, ZeroHedge, much to it's surprise, shot rather wide of the mark (assuming one takes the report at face value—which is a dangerous assumption). While the reality of increased layoffs in June is cause for concern—and is, it should be noted, consistent with the cooler labor market predicted by the mainstream types—the job loss anticipated by ZeroHedge apparently didn't happen (at least, not at the top-level numbers).

BTCM Research had by far the most negative assessment of the US labor market, focusing on a labor force participation rate that is still considerably below where it was in February, 2020, just before the Pandemic Panic lockdowns and resulting recession.

The real picture is much more concerning. The labor force participation rate continues to hemorrhage workers (meaning able bodied workers are just disappearing from the labor force en masse), falling well short of it's February 2020 level. In fact, the Covid recession has actually maintained the negative trajectory of the labor force participation rate (chart below) that followed the 2008 GFC. The labor force participation rate is now at a level last seen in the 1970s, a time before many women had entered the labor force. It is also worth noting that a disproportionate ratio of women have fallen out of the labor force this time around when compared to their male cohorts.

Given that the labor force participation rate has not move appreciably in a few months now, BTCM’s concerns about labor force participation, while not detracting from the positive job growth number at the top of the report, warrant continued consideration, as the labor force participation rate itself deserves far more scrutiny than it receives.

Review: Where Employment Stood In May

While much is made of the “strength” of the US labor market, we should not lose sight of the reality that the number of unemployed individuals actually rose in May, from 5.941 million in April to 5.95 million. That figure is significantly higher than the 5.717 million unemployed in February, 2020, the last month before the Pandemic Panic lockdowns shredded jobs markets everywhere

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Nor can the uptick in unemployed individuals be ascribed to more people entering the labor force after being on the sidelines. Non-farm employment actually peaked in March, at 146.955 million before declining in April to 146.638 million and again in May to 146.455 million.

Some of that decline can be attributed to individuals opting for self-employment, which at 9.291 million for May is the highest such number since October of last year, when the number of people pursuing self-employment stood at 9.465 million. However, more than one million fewer people were engaged in non-farm employment in May than in February, 2020. At the same time, only 358,000 more people were self-employed in May than in February 2020.

Moreover, the May employment-population ratio of 60.1% was over a full percentage point below where it was in February, 2020, when it stood at 61.2%

The labor force participation rate was similarly below its February, 2020, level, despite somewhat recovering from April’s decline.

While the labor force has almost recovered from its plunge during the 2020 recession, and is nearing February, 2020 levels, describing it as “strong” ignores the persistent weaknesses and anomalies that have remained in the labor force data since the recession. Given that overall employment and labor force participation has yet to return to pre-pandemic levels, BTCM Research’s assessment that “new” jobs are not being created and the labor markets are merely replacing the pre-pandemic jobs that were lost in 2020 has more than a little substance behind it.

The Job Cuts Report: A Warning Signal

The more dire forecasts for the June jobs report are not merely Cassandra-like doomsaying. There are good and substantial reasons for conjecturing the worst case scenario as a probable one for June. At the forefront of these reasons is the June Job Cuts Report from executive recruiter Challenger, Gray, and Christmas, which noted that June was the worst month year to date for announced layoffs and headcount reductions, as well as the worst month since February of 2021.

June marks the highest monthly total since February 2021, when 34,531 cuts were announced. It is the second time this year that cuts were higher in 2022 than the corresponding month a year earlier.

However, while announced job cuts rose significantly in May, 2022 year-to-date has been considerably better than the same time frame for 2021.

So far this year, employers announced plans to cut 133,211 jobs, down 37% from the 212,661 cuts announced through the first half of 2021. It is the lowest recorded January-June total since Challenger began tracking monthly job cut announcements in 1993

Only one-third of the industries for which Challenger gathers employment data has announced more job cuts this year than last.

A substantial number of the job cuts for June were in California and New York, where 2022 job cut totals far outpace the corresponding 2021 levels. At a regional level, the Eastern states outpaced their 2021 job cut totals, 37,849 to 28,103, whereas the Western states are far behind their 2021 job cut totals, 48,186 to 114,043—with more than half of the 2022 job cuts for that region occurring in California.

It should also be noted, however, that June was the first month in 2022 where the number of planned hirings did not exceed the the corresponding 2021 month. Job cuts may be up in June, but hiring has been up since the beginning of 2022.

The layoffs are a potential warning signal of weakness yet to come, but the overall Job Cuts Report for June is very much a mixed bag of genuine good news and genuine bad news.

The June Report: Shades of Lou Costello Labor Math?

While the top-level number of 372,000 new jobs is marginally positive, what the report itself does not highlight is that the labor force itself, according to the household survey, actually fell, while the number of individuals not in the labor force rose significantly.

This despite an uptick in the civilian non-institutional population.

Jobs created, but workers lost? Are we looking at a subtle hint of some Lou Costello Labor Math?

Yes, especially given that the number of actual job losers declined by 91,000, as did the number of new entrants to the labor market (71,000), while the number of individual who simply left a job rose by 68,000, and the number of workers returning to the job market rose by 47,000. Perhaps if there were no new entrants or reentrants the numbers would be a tad more believable, but with an increase in both categories the dichotomy is highly suspicious.

Job leavers is an important metric to watch, as the rise in the number of individuals unemployed five weeks or less rose in June by 196,000, indicating a significant amount of job churn in the unemployment data—proof that the Great Resignation is still very much ongoing. Near-term unemployment duration (5-14 weeks) declined, as did long-term unemployment (27 weeks+), with mid-term unemployment rising by 92,000. People are either moving quickly to a new job, or languishing for a few months before finding a job.

Buried at the very bottom of the statistics is a number of some concern: “Discouraged” workers—those workers only marginally attached to the labor force (and thus technically not in the labor force) who believe there is no job available for them—declined by 51,000. Given the rise in the number of persons not in the labor force, it is highly likely those “discouraged” workers simply gave up altogether—this may help explain the decline in labor force participation to 62.2%, and the decline in the employment-population ratio to 59.9%.

The Great Resignation put more workers on the sidelines in June—not a good trend for any economy, recession or otherwise. That alone makes the top-level 372,000 number essentially bogus.

This also calls into question how it can be that, despite the rise in layoffs in the Automotive and Health Care industries in the June Job Cuts Report, those payroll classifications both show decided payroll growth in June: Automotive employment rose by 2.1 thousand, and Health Care employment rose by 77.8 thousand.

Either the Challenger report overstated job cuts in these industries or this is yet more Lou Costello Labor Math.

Earnings on labor, while notionally positive, were also a disappointment. At a time when inflation is running near 1% month-on-month, weekly earnings only rose 0.6% for the month—indicating workers lost even more of their shrinking paychecks to inflation.

Numbers Don’t Lie

One reality is unavoidable. Despite the proclamation at the top of the labor report that payrolls grew by 372,000 in June, the BLS data shows that total employment, non-agricultural wage and salary employment, non-agricultural self-employment, and part-time employment all declined in June. The “increase” of 372,000 payroll jobs is ultimately just Lou Costello Labor Math. When the labor force is declining there can be no increase in jobs, period.

The BLS wants to say that payrolls increased in June. The data says the exact opposite.

Those hoping for a jobs number just low enough to dissuade the Fed from making good on its 100bps rate hike threat/promise are going to be sorely disappointed by the Employment Situation Report. The top level number gives the Fed even more ammunition for such a hike, even if the internals of the report paint a far less healthy picture of the workforce..

While we will have to wait until next week’s inflation data to get a clear picture of how the data will articulate Fed policy over the next couple of months, unless there is a serious moderation of inflation in the CPI data for June, the markets can look forward to at least a 75bps rate hike—with all the network effects that entails.

For the rest of the economy, meanwhile, the BLS Employment Situation Report is considerably south of being actual “good” news. While we may not be seeing actual job destruction yet—meaning job openings are not discernibly disappearing, we are witnessing a shrinkage of the labor force itself, as well as the participation of that labor force in labor markets. Both declines are further evidence that we are in a recession, and that recession is getting deeper and deeper—despite government bloviations to the contrary.

Job openings simply do not matter when the workforce no longer exists to fill them. When workers are simply dropping out of the workforce all talk of a “strong” economy is immediately and patently absurd (as is any mention of payroll growth). Shedding workers is the essence of all recessions, and that’s what happened in June.

The times are getting more and more “interesting”. Prepare accordingly.