Last week was an impactful one if you are looking for work (especially new grads) or have a 401(k) or other investments. A worse-than-expected jobs report led to a series of events that fell one after another like dominoes.
Here is what happened:
A three-month trend of reduced hiring led to concerns about a weakened U. S. economy, which caused stocks to decline, leading to the firing of the Commissioner of the Bureau of Labor Statistics (BLS), which could erode confidence in government statistics used by investors, fund managers, governments, and businesses to make decisions. (Take a breath here.) Oh, and all that could lead to a reduction in interest rates..
Declining Hiring Trend
The BLS reported Friday that only 73,000 jobs were created in July. That was well below forecasts of 100,000 new jobs.
To make matters worse, hiring figures for the previous two months were revised downward by a combined 258,000. May’s figures dropped from 144,000 new hires to 19,000. June’s new hire numbers plummeted from 147,000 to 14,000.
Revisions in monthly new hire and jobless figures occur routinely as additional reports from businesses and government agencies are received, according to the BLS.
Unemployment Ticks Up
In addition to the new hire figures, the BLS data showed a slight hike in unemployment from 4.1% to 4.2%. New jobs have averaged 35,000 over the last three months. That is well below the 123,000 average over the same period last year.
At the same time, there was a corresponding .1 decline in the number of people in jobs or seeking employment. That decrease helps keep unemployment figures lower.
A .1% rise in unemployment by itself is usually not a concern for the economy. However, some fear that, combined with the drop in new jobs, an economic downturn might be developing.
Unemployment Lasting Longer
More unnerving data in the BLS report shows that it is taking longer to find a job.
Those unemployed for 27 weeks or longer exceeded 1.8 million last month. Not counting the COVID-19 unemployment spike, that is the highest number since 2017. In addition, the median length of unemployment rose year-over-year from 9.5 to 10.2 weeks.
“We’re finally in the eye of the hurricane,” Daniel Zhao, chief economist at Glassdoor, told the Associated Press. “After months of warning signs, the July jobs report confirms that the slowdown isn’t just approaching—it’s here.”
Employment Headwind for New Grads
College graduates are facing an especially tough job market. Even before the July jobs
report, their unemployment rate exceeded the national average. A second-quarter report from the New York Federal Reserve showed that the unemployment rate for degree holders aged 22 to 27 was 5.3%.
“The percentage of unemployed people who are ‘new entrants’ to the workforce is the highest it’s been since 1988,” writes Mardoqueo Arteaga, economist/analyst at LinkedIn. “What does that mean? Think of it this way: new entrants are recent graduates, new immigrants, or people returning to the workforce after a long time off. The fact that they now represent a huge slice of the unemployed pie (specifically, a proportion not seen in nearly 40 years) is a red flag that the job market is struggling to absorb new talent.
“This trend is especially concerning when you pair it with other news from today: overall hiring has slowed dramatically, and previous job gains were revised sharply downward. This suggests a much weaker labor market than many believed, one that is becoming increasingly difficult for new job seekers. It doesn’t take long from reading the news around here to get the vibe that things are unstable.”
Trump Plays the “Rigged” Card
Instead of addressing the problem, Trump shot the messenger. BLS Commissioner Erika McEntarfer was fired by Trump. In justifying the move, Trump sounded a familiar refrain with no evidence to back it up..
“In my opinion, today’s Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad,” Trump posted on Truth Social.
Why The Jobs Figures Are Important
The low hiring numbers over the last three months are important because they signal that the economy is weaker than expected. That could create investor unease and change the upward trajectory of stock markets.
Indeed, the markets did tumble on Friday. The Dow Jones Industrial Average fell more than 500 points. That is about 1.2%. Notably, the decline was the biggest weekly loss for the Dow in four months.
The other major markets also suffered losses. The S&P 500 sank 1.6% while the Nasdaq dropped 2.2%.
The S&P 500 was already on a losing streak. Friday marked the fourth consecutive day it closed lower than the previous day. However, the index had closed higher for six trading sessions before its reversal.
Why The Firing is Important
As a reality star on The Apprentice, Trump was noted for telling contestants, “You’re fired.” In the make-believe world of reality television, the line bore little to no consequences. However, when the head of a trusted economic statistical agency is removed for delivering bad news, there are repercussions.
The BLS is supposed to run as an independent part of the Labor Department. Its mission is to measure labor market activity, working conditions, price changes, and productivity in the US economy. In other words, it gathers numbers from businesses and other government agencies and produces reports on consumer prices and employment.
Those figures are used to make financial decisions by businesses, investors, financial institutions, human resources departments, the Federal Reserve, and federal, state, and local policy makers. In short, if you are looking for work, have a 401(k), need a loan, have a bank account, want your city to hire more police officers, or have an involvement in any number of other financial concerns, it is important to have accurate information from the BLS.
Many are questioning whether future BLS reports will be reliable.
Firing Garners Bipartisan Criticism
The president’s unsubstantiated claims got pushback – even from one of his own. William Beach was appointed commissioner of the BLS by Trump in 2017.
“The totally groundless firing of Dr. Erika McEntarfer, my successor as Commissioner of Labor Statistics at BLS, sets a dangerous precedent and undermines the statistical mission of the Bureau,” Beach posted on X.
“The President seeks to blame someone for unwelcome economic news. The Commissioner does not determine what the numbers are but simply reports on what the data show,” Beach said in a statement.
“Firing the Commissioner of Labor Statistics when the BLS revises jobs numbers down (as it routinely does) threatens to destroy trust in core American institutions, and all government statistics,” Arindrajit Dube, an economics professor at the University of Massachusetts Amherst, posted. “I can’t stress how damaging this is.”
“In many ways, this is about slowing down,” Dr. Raphael W. Bostic of the Atlanta Fed told CNBC, “And now the test we have is really to figure out, to what extent is this slowdown likely to persist and get us into a more troublesome position. But we don’t know that now, and that’s something that I’ll be working on over the next two months.”
Increased Likelihood Of Fed Rate Cut
Bostic’s reference to “the next two months” alludes to next next Fed meeting in mid-September.
The Fed passed on cutting rates last week, but Friday’s BLS report and the reaction of markets make a cut in September almost a certainty. The CME FedWatch tool has raised the likelihood of a rate cut from forty to over 80%.
Trump had been pressuring Fed Chair Jerome Powell to cut rates.
The president’s insult campaign has included calling Powell “stupid,” “a TOTAL LOSER,” and a “disaster.”
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their cat – Pudge. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.
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