Economic Data Tracker –
Blowout jobs report in July

Economic Data Tracker

August 5, 2022

Our weekly view on the economy including rationale on GDP, jobs report, and Fed policy decisions. Download the entire weekly edition to view timely charts and data providing a comprehensive picture of how incoming economic data affects our economic outlook.

Trend watch and what’s new this week

On the COVID-19 front, there’s evidence that new cases are increasing, especially with modestly rising hospitalizations. But official confirmed cases have fallen for three straight weeks. This is likely due to increased home testing vs. centralized testing. Nonetheless, the percentage of hospital beds occupied by COVID-19 patients and the death rate have held rather steady.

The activity-based data (slides 5 and 6) has remained solid. Hotel occupancy, temp staffing, and rail traffic have been stronger in July and early August. Air passenger counts dipped WoW, but are largely tracking close to 2019, albeit a couple percent below. Restaurant bookings are similarly running a couple percent below 2019.

Another big upside surprise for July job growth

The July jobs report was strong. U.S. payrolls jumped by 528,000, more than double the consensus of 250,000. Meanwhile, the unemployment rate edged down to 3.5%, a new low for the cycle. On slide 7, we show the major industry view of where the hiring happened, along with a big picture view of the recovery. Spoiler alert: the U.S. has now surpassed the pre-pandemic total number of jobs.

A separate report also showed that labor market conditions remain hot. The gap between job openings and hiring remain more than 2.5 times greater than the pre-pandemic all-time high (slide 8). Meanwhile, the so-called quit rate—the percentage of employees voluntarily quitting—remains significantly above the long-term average. Workers don’t typically quit without having another job or the belief that they can easily get a job.

On slide 9, we dig a little deeper into second quarter gross domestic product (GDP), which fell 0.9% on an annualized basis. We show the composition, with biggest impact coming from business inventories, along with the trend of business inventories.

Mixed signals within manufacturing and services

Two separate manufacturing gauges showed differing views. Meanwhile, services appear to be reaccelerating, which is good sign.

The Institute for Supply Management (ISM) Manufacturing Index fell sharply in June (slide 10). Within the components, new orders contracted for a second straight month, but price paid fell sharply (improved) to a five-month low.

On slide 11, new orders for durable goods in June had the largest increase in five months. Moreover, new orders for core capital goods jumped to a fresh new all-time high.

On slide 12, the ISM Services Index surprised to the upside in July. We highlight new orders, which surged to four-month high. Also, the price paid component fell to a 17-month low.

Also, within services, health care was a big job contributor to the strong July job growth. The industry added 69,600 jobs, the most since the reopening months in the summer of 2020. This is a very good sign insofar as health care services account for roughly 25% of the total economy. Moreover, health care employment has lagged the overall recovery, including three months of job losses during 2021.

Lastly, tying into the inflation (the price paid components), gasoline prices have dropped about 18% since topping $5 per gallon during June (slide 13). This should help with the July inflation readings. Yet, due to continued supply imbalances, we’d recommend holding off on cheering about lower gasoline prices.

Other data improving

On slide 14, trucking volumes continued to climb in July, hitting a fresh all-time high, going back 30 years. It suggests that supply chains are normalizing, and that demand remains solid. 

Our take

The labor market didn’t get the memo that it’s supposed to be weak. In fact, not only is it not weak, July saw the most hiring in five months – and that was with very strong headwinds; most notably, the spike in gasoline prices above $5 per gallon nationally in June. Indeed, the labor market is pushing back strongly against the notion that the U.S. is in recession currently.

There have been 3.3 million jobs created in 2022, or an average of 470,000 per month. That’s more than 3.5 times the long-term monthly average of 125,000. These are not the hallmarks of a weak economy and the U.S. has never had a recession while maintaining such strong job growth.

Yet, strong labor market conditions also mean that the Federal Reserve (Fed) will continue front-end loading larger interest rate hikes. While there’s a lot more data coming between now and the next Fed meeting on September 21, this certainly puts another three-quarter point (0.75%) rate hike on the table. At the very least, it upends the recent “Fed pivot” narrative that data has softened enough for the Fed to relax.

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