The July jobs report was a major disappointment, with the economy losing 23,000 jobs during the month. Economists expected a gain of around 80,000 jobs. The weak showing suggests the economy might be weakening in ways that affect inflation, interest rates, stock values, and President Trump’s political standing.
But maybe it’s not that surprising. When the July report hit I was at Camp Kotok in eastern Maine, an annual gathering of financiers, economists and other interesting people. One of the regular attendees is Jim Bianco, president of Bianco Research in Chicago. Jim is a keen market observer and he spent some time talking with me on camera about the jobs report and a few other trendy topics in finance.
Jim explained how the labor market is changing, and how we need to change our own expectations as a result. The upshot is that job growth is probably slowing permanently—and it may not be as bad as it sounds. Jim’s remarks on the job market follow, with some bullet points below. You can see my full interview with Jim at the bottom.
Population growth is the underlying issue. The US birth rate has been slowing for years. We’ve maintained population growth through immigration—until Trump put a stop to that. Lower population growth means we can keep the unemployment rate low with fewer jobs. That’s what seems to be happening.
[David Kotok vents: “The lousy, stinking politicians”]
Lower for longer. Until recently, economists thought we needed about 100,000 new jobs per month to keep the unemployment rate steady. But now, it might take 35,000 jobs or fewer. We’ve been meeting that lower target on average, even with the loss of jobs in July.
The July job losses kinda make sense. “If you look at why it went down, there was 50,000 jobs subtracted from government and from leisure and hospitality,” Jim explains. “That is, restated: Summer school ended, and a bunch of teachers stopped working, and the World Cup ended, and a bunch of hospitality workers, their jobs ended.”
There were positive signs, too. The construction, manufacturing, and tech sectors added jobs in July. Part of that is the artificial-intelligence buildout, including data-center construction. “Remember we were all going to lose our jobs to AI,” Jim says. “That actually had very good gains for the month.”
Unemployment went down. It dropped from 4.2% to 4.1%, the lowest level in 14 months. The U-rate measures unemployed workers as a portion of the labor force, and with the labor force contracting, the U-rate can go down even if there’s a loss of jobs. Jim thinks that’s more or less okay. “If we weren’t producing enough jobs, the unemployment rate would be going up,” he says.
Feel better? 🤔
Here’s my full interview with Jim, conducted August 9 on the deck at Leen’s Lodge, on the shores of West Grand Lake.
Lower employment makes it easier for the Fed to cut rates rather than raise them