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The Bombshell in the July Jobs Report


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Source: Counterpunch

Last Friday, August 5, US Jobs Report for July 2022 surprised even mainstream economists who had forecast a 250,000 increase in jobs created in the official US Labor Dept. monthly jobs report for the period ending mid-July. The numbers came in at 528,000 in the CES, the large corporations’ survey for the month.

The unexpected large increase in jobs was jumped on by Biden administration and business sources alike who had been arguing publicly in preceding weeks that the US economy was not in recession. How could it be a recession, when the jobs market was so robust, the argument went?

Never mind the fact that the US economy measured in GDP terms contracted by -1.6% in the first quarter of 2022, followed by another -0.9% contraction in the second quarter for a combined first half, January thru June, decline of -1.3%.  That was just a ‘technical’ recession, not a real one, the recession deniers argued. The real declaration of a recession remains, the Biden administration officials argued, is with that group of politically well-connected professional economists from elite universities who are members of the quasi-official NBER (National Bureau of Economic Research). It is they who decide whether a recession has occurred, and months after it is virtually over.

The NBER experts are yet to say it’s a recession, the administration declared.  The NBER looks at more than just GDP and jobs are being created at the rate of 528,000!

Of course this argument ignores the fact that jobs are notoriously a ‘lagging indicator’ and jobs decline in a recession only on average six months or later after a recession commences. The administration view also ignores the further fact that whenever GDP has contracted two consecutive months, as recently, in all the past US recessions it has been followed by the NBER also declaring well after the fact that a recession has occurred.

But there’s a deeper problem in the view that relies on the last jobs report to argue that there’s no recession yet, notwithstanding the first half GDP contraction in the US. That problem is last week’s jobs numbers—showing 528,000 new jobs—may not be accurate either: Even if it is assumed that large corporations created 528,000 jobs in July—as indicated in the CES (Establishment) survey of the Jobs Report—the second survey, the CPS or Household survey, in the report shows something quite opposite.

There’s a bombshell in the CPS survey that the Biden administration, the media, and most mainstream economists are conveniently ignoring—or else aren’t capable of understanding.

Here’s the basic contradiction July’s Jobs Report:

The CES Survey, which is based on about 450,000 larger enterprises reporting to the Labor Dept. every month, indicated the 528,000 ‘new’ jobs created in its B-1 Table.

But the second survey, the CPS Household survey, is obtained by the Labor Dept. doing a phone survey of 50-60,000 households every month and asking them if they’re working, if unemployed, if out of job but still looking for one, when was the last time they actively searched for a job, etc.  The CPS/household survey also determines the unemployment rate, not the CES.

But like the CES establishment survey the CPS survey also determines a monthly level of total employment in the economy. Thus, there’s two different estimates of jobs growth in the month.

The CPS survey revealed something quite different, even contradictory, to the 528,000 jobs gained in the CES survey last month. The CPS’s Table A-8 shows a decline in total non-agricultural jobs from June to July of –112,000.  Moreover, the CPS total employment numbers show an even further fall in total employment since May 2022 thru July 2022 of -181,000.

So what’s going on? What’s the correct number of employment gains in July? Is it the CES establishment survey’s 528,000 net new jobs in July? Or is it the CPS survey indicating 112,000 fewer net jobs?  

Never has the gap between the two surveys that constitute the monthly Labor Dept. Jobs Reports been larger.  But you’d never know it listening to the mainstream media or the politicians.

There’s a saying that ‘the truth is always in the details’ and that’s never truer than when considering government statistics—especially employment stats but wages and inflation as well.

And there’s a ‘bombshell’ group of stats within the CPS survey that strongly suggest the US labor market has hit a wall since May and is actually beginning to soften quickly—a trend that will likely accelerate in coming months.

If the CPS is the more accurate of the two surveys, and the jobs market is actually not robust but is softening, then perhaps recession is actually here now?

And there’s another implication from the contradiction in the two surveys’ jobs numbers: if the Federal Reserve focuses on the 528,000 number and continues to accelerate its interest rate hikes at 75 basis points again next month (and again thereafter), it will only accelerate the recession that has begun and cause it to go deeper than it already has.

What then precisely is the ‘bombshell’?

In Table A-8 in the CPS survey there’s a category that measures the number of part time jobs created the past month. It shows that no fewer than 800,000 part time jobs were filled during July—300,000 involuntarily part time jobs (i.e. workers forced to work part time when they wanted full time work) and another 500,000 part time jobs created voluntarily (i.e. workers chose to work part time).

First, one might ask, if 800,000 part time jobs were created, how does one get ‘only’ 528,000? It could logically happen if 275,000 or so full time workers ‘lost’ their jobs (i.e. 528,000 + 275,000 equals roughly 800,000). Or it could mean some of the 275,000 full timers lost their jobs outright but some of them found their full time jobs reduced to part time.  If the latter case, then the average number of hours worked should also show a decline in July.  But it didn’t. The average hours worked per week remained at 34.6 as it had in June. And in manufacturing, where typically more overtime hours are worked, hours worked also remained stable month to month as well, at 40.4 hours/week.  In other words, it doesn’t appear likely that the majority of the 275,000 jobs difference (i.e. 800,000 minus 528,000) is attributable to full time workers previously being reduced to part time hours. So some full timers must have been laid off.

Another possible explanation of the discrepancy is that perhaps many of the 528,000 new jobs were actually new part time jobs created in July. Maybe even more than 528,000 hired were part timers. (The Labor Dept does not differentiate between a new job that’s full time and one that’s part time. A new job is a new job. It counts both part time and full time as just ‘a job’.)

That many, if not most, of the 528,000 are likely ‘part time new hires’ is supported by the job gains in July in those industries that notoriously hire only part timers. According to the CES, there were 74,000 net new jobs created in bars and restaurant employment, for example. 22,000 in retail sales. Another 22,000 in hotels, accommodations and entertainment and so on. All these particular industries are notorious for hiring part timers almost exclusivelyl. Even manufacturing in recent decades has hired an increasing number of part time and temp workers. It too added 30,000 last month.

How many of the 528,000 CES survey July jobs were part time is unfortunately not specifically identified by the CES report. One must infer from data provided in other Tables in the CPS survey, as we’ve just done. It’s not exact, but it suggests the number of part time jobs created is probably quite large.

But what if the 528,000 is composed almost entirely of part time job creation? If so, the full time employment must have risen very little in July. But full time employment not only did not rise in July over June. It actually declined! CPS Table A-9, for example, shows 132,577 full time jobs in July down from 132,648 in June—a decline of 71,000. And the decline is even greater from May: 223,000 fewer full time jobs in July compared to last May.

So, per the CPS survey, full time jobs actually declined last month while part time jobs rose in July by 800,000. That suggests the 528,000 CES survey rise in jobs in July is overwhelmingly composed of part time jobs.

It’s important to understand that the monthly Jobs Reports do NOT represent workers finding work for the first time—either after being unemployed, or re-entering the labor force, or entering it for the first time.  The Jobs Reports report Jobs created, not employment per se.

Here’s a corroborating further statistic for this assumption that part time jobs are surging, accounting for the vast majority of the 528,000 while full time jobs are actually declining.

The category of ‘Multiple Job Holders’in CPS Table A-9 shows a consistent sharp rise in multiple job holders in recent months and over the past year for that matter. Multiple jobs mean virtually all part time jobs. Multiple jobs rose by 92,000 in July over June and by 331,000 since May. And from July 2021 to July 2022, the increase in multiple (2nd, 3rd) jobs was 549,000.

In other words, 331,000 of the job gains in recent months do not represent formerly unemployed workers returning to the workforce and getting ‘new’ jobs for the first time. They represent workers already with jobs—and increasingly those with only part time jobs—taking on new, additional part time jobs.

92,000 of the 800,000 part time jobs in July were thus workers taking on 2nd and 3rd jobs per Table A-9. And it’s further likely most of the -71,000 full time jobs lost were just cut from full time to part time work. All this churn going on the CPS survey which captures smaller employers is totally missing in the CES survey of larger corporations which picks up no data on part time, temp, multiple jobs, etc.

Summary

We can summarize these alternative statistics from the Labor Department’s July CPS survey showing a net decline of -112,000 jobs, that contradict its CES survey’s 528,000 new jobs assumption, as follows:

  • The CES survey picks up raw jobs data from larger enterprises but misses job trends in the small-medium businesses in which trends are more volatile and downturns (and upturns) in job creation often shift and precede trends in larger establishments
  • The CPS survey breaks out diverging trends in part time vs. full time work in more detail as well as part time that reflects multiple jobs vs. single held jobs (either full or part time)
  • The CPS shows slowing and evening declining job creation for full time work, which means less total wages for millions of workers compared to if they were full time.
  • Slowing to declining full time employment (CPS) amidst rising part time and multiple job holding means employers are hiring more cautiously, preferring part timers in case they have to soon lay off workers as recession deepens
  • The part time and multiple job trends are a ‘canary in the employment coal mine’, signaling a slowing in hiring overall that will soon spill over to the CES survey. It does not reflect a robust labor market ‘on fire’ in terms of hiring and economic growth.
  • Workers are taking on more part time and 2ndjobs because they probably can’t find decent paying full time jobs offered by companies.
  • All the media talk about 11 million jobs out there that workers won’t take does not account for the likelihood these are mostly not full time and are insufficient part time paid jobs.
  • All the hype about workers’ quit rates being so high is probably representative of workers quitting poorly paid part time jobs and seeking and getting other better paid part time work (or less dropping out of the workforce because they can’t find something better, which is also rising)

This scenario of the US jobs market does not support the view that the US economy is booming due to the large number of jobs created per the CES survey.

The Fed, therefore, by accelerating its rate hikes is doing the opposite of what it should.

Other labor statistics corroborate the view that the labor market is hitting a kind of wall this summer 2022. Look at the labor force participation rate statistic, which is also slowly declining in recent months. Or the rising number of people surveyed who indicate ‘Not in the Labor Force’. Or the numbers for the job category, unincorporated self-employed (i.e. mostly independent contractor very small businesses) which is dropping (are they also leaving self employment and taking part time jobs or just dropping out of the labor force as well?)

It is true that the numbers of employed rose significantly from the spring of 2021 to March 2022. That was due to the economy ‘opening up’ after vaccines became widely available after the worst of Covid in spring 2021. About 6 million jobs were added, April to April. But this were not jobs that were ‘created’, as the politicians like to say. These were jobs that were ‘restored’ after the Covid shutdown. How many actual net new created jobs out of that total are likely not many. However, we’ll never know since the Labor Dept. stats don’t distinguish that.

This could be the greater actual scenario: now that the ‘restored’ jobs have been maximized over this past year, the US economy appears as of this summer 2022 unable now, going forward, to actual create net new jobs—except perhaps in the form of part time work

Part time jobs always rise sharply at the end of a business cycle when the economy enters a recession period.  As the recession deepens, part timers are then first laid off.  Conversely, in early phases of recovery from recession, businesses typically hire more temps (also mostly part timers) as they test the water whether a recovery is truly underway.

The dynamic of the relationship between full time hiring, part time and temp hiring over a business cycle is poorly understood by most economists. The government data don’t help but hinder that understanding.

However, one thing is clear: the US economy is already in recession in early stages as recent GDP data show and, as the data in the CPS survey Tables, A-8 and A-9, corroborate.  These CPS tables reflect the deeper job trends—not the CES Table B-1.

The politicians and media—and the Fed—by focusing on the CES survey’s 528,000 job—and ignoring the CPS part time, total employment and multiple job holder trends are missing the recession that’s already begun.

By the late fourth quarter 2022 the ‘bombshell’ of surging part time and declining full time jobs embedded within the CPS data will have ‘gone off’. The jobs market will no longer lag and the recession will be blatantly obvious. The Fed will have to abruptly halt accelerating its rate hike policy. And the NBER will have to agree after the fact that the so-called ‘technical recession’ that arrived in the first half of 2022 did indeed signal the US economy had entered recession.

 

For more of Jack Rasmus’s recent analysis on US inflation, US recession, GDP, and global economy, go to the blog: http://jackrasmus.com or tune in to his Friday radio show, Alternative Visions, on the Progressive Radio Network, 2pm eastern; also podcast thereafter at http://alternativevisions.podbean.com.

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