June’s unemployment report was weaker than expected. It looks like the labor market is slowing enough to convince the Fed that interest rates should come down. Not only fewer nonfarm payroll jobs were added to payrolls, but past months were revised downward because the Labor Department make what are called seasonal adjustments, which are comparisons to past years’ job creation totals to create a more accurate picture of job growth.
The FRED graph below gives the best picture of those adjustments. The unemployment rate ticked up to 4.1 percent in June from 3.8 percent in March. The sudden rise in the unemployment rate in the middle of the work year should alarm Fed officials.
Further evidence of slowing economic growth is that average hourly wage growth fell to 3.9 percent. It makes up to two-thirds of production costs for most businesses, and is now the main driver of inflation.
FREDunemployment
Of the 206,000 jobs created, a 70,000 increase in new government jobs accounted for one-third of the total. Most were in state and local government, which is where most of the infrastructure modernization is happening.
Government hiring has surged over the past year as private-sector hiring has faltered. The private sector added just 136,000 in June. Health care, another fast-growing industry, created 49,000 new jobs. The construction industry increased payrolls by 27,000.
Yet leisure and hospitality, another industry that had been hiring lots of workers, only added 7,000 jobs. Such leisure activity employment has barely risen in the past three months. Employment also fell in professional and business services, retail, manufacturing and temporary work.
The slowdown in leisure and hospitality is the best sign that consumer spending has slowed, which will bring down Q2 economic growth. So, things are not looking so rosy for economic growth going forward.
It’s why many economists are calling for the Fed to now become proactive and mitigate any future slowdown. Cutting interest rates will first aid the severely constricted housing market with 30-year fixed rates now back above 7 percent. Manufacturing is barely staying afloat because private investment is waiting for lower borrowing costs.
This means the private-public projects in infrastructure and other parts of Bidenomics’ projects that are revitalizing the U.S. economy are mainly being paid for with taxpayer money. But the private sector will jump back in once the much-anticipated rate cuts begin.
And once a better private-public investment balance is restored, not as much taxpayer money will be needed to improve economic growth, and that is really the only way to bring down the federal debt. The annual increase in public federal debt to GDP ratio is just 4.1 percent in the first quarter 2024. It plunged -10 percent during the pandemic, per the FRED graph and returned to positive territory in Q2 2023, in part because of faster economic growth since the pandemic.
This truth will confound the budget hawks who want to cut spending to pay for the tax cuts Republican will keep proposing. But without such taxpayer investment in the future; (paying it forward, to quote Senator Elizabeth Warren), there is very little future growth. Nor is there a prosperous future in store for most Americans.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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