>Today’s Non-Farm Payrolls report was not good. But it’s more than that. There was something ominous about it. Or like it was a glimpse into a weird future.
Let’s just start with the data. The actual headline numbers weren’t really that big of a deal. Headline job gains came in at 73K vs. expectations of 104K. Not the end of the world. The unemployment rate ticked up to 4.2%, but that’s what economists were forecasting, so that’s fine.
>However there are two mega-asterisks everyone’s paying attention to.
>First was the revisions. According to the BLS, the last two months of job gains were overstated by 258K. Those solid post tariff reports? An apparent mirage.
>But then also, look at what sectors are adding jobs. From the report:
>In July, health care added 55,000 jobs, above the average monthly gain of 42,000 over the prior 12 months. Over the month, job gains occurred in ambulatory health care services (+34,000) and hospitals (+16,000). Social assistance employment continued to trend up in July (+18,000), reflecting continued job growth in individual and family services (+21,000).
>73,000 jobs were added in July, and 73,000 of them can be attributed to two low productivity sectors that increase mechanically almost every month, as society gets more old and infirm. Everything else is stalling at best. It’s actually worse than stalling.
>As Matt Boesler noted, “Without health care, the last three months of payroll gains look like this: -53,000 in May, -45,000 in June and -300 in July.”
Of course, we know in reality that it isn’t just health care and social assistance that are growing. There’s that whole AI thing going on, which is helping to lift the entire stock market to record highs. Yesterday alone, Meta added about $200 billion to its market cap.
>Generally speaking the other big tech giants are more or less riding the same wave. It’s great for shareholders, and it’s great for some workers. Again with Meta, it’s been hiring top AI talent with compensation packages that are in line with professional athletes.
>But if you ignore this very small slice of elite AI talent, the labor market within tech doesn’t look that great. Microsoft has been another huge AI winner, with its cloud business growing like crazy. And yet even they’ve been cutting jobs. Its CEO Satya Nadella even posted a memo about how the pace of layoffs at his company have been “weighing” on him.
This is a weird state of affairs! Normally when a company’s profits and stock are booming, you just sort of assume them to be in hiring mode.
>So if you just think about the current state of the US economy, there’s something vaguely futuristic about it. A very tiny handful of people getting generationally wealthy (and powerful). A broad swathe of people seeing their personal balance sheets improve, because the stock market’s been so hot (you could argue that the stock market has become something of a privatized UBI for people fortunate enough to have bought in). And then the only areas of actual widespread jobs growth being in areas that are tied to aging and health, much of which is sustained by widening deficit spending.
What we’re not seeing is any kind of general expansion in activity across the economy.
>A bad jobs report here or there is not the end of the world. They happen from time to time, and people freak out, and then forget about it. However the specific contours of this moment feel like a glimmer of a stranger, less comfortable future.
It’s interesting to observe the market today. 2-year yields are down sharply (about 21 basis points), as you would expect, because the weakness in the data make the case for sooner cuts and more of them. Odds of a September rate cut are now at 88%. Just yesterday they were less than 40%. And yet the action at the long end of the yield curve is less dramatic, with the yield on the 10-year down closer to 15 basis points. The market is telling us that over the long-term, conditions will still warrant elevated interest rates, even if we’re in a moment of stall.
In fact, this is generally a problem for both the Fed and The White House. Today’s data certainly makes the case for cuts look stronger. In fact at 8 AM this morning, Fed Governor Waller put out a statement, explaining why he voted for a cut this week, and the argument holds up well. But if the goal is to revive the housing market, or to reduce interest payments on the debt (which seems to be what Trump is interested in) it’s not clear that we’re going to get much juice from the squeeze on cuts.
Part of the problem is that for all this softness, inflation is still on the warm side. There’s clearly been a lot of progress made over the last couple of years on inflation, but just yesterday we saw Core PCE come in at 2.8% year over year. And the prior month was even revised up a little bit.
>Going back to the whole labor market, you can’t just ignore categories like healthcare and social assistance. Those are real, needed jobs. They count. But they’re low productivity areas, growing for somewhat mechanical reasons. Their growth does not speak to an economy that’s exhibiting generally rising prosperity or dynamism.
>I guess I’d conclude by saying that today’s report makes it easy to envision what a stagflationary environment looks like: An economy that exhibits mediocre growth across many sectors, but which sustains a fairly high level of resource utilization, because there’s so much demand for social assistance (soaking up labor), and demand for electricity and certain types of industrial gear (soaking up capital) due to the AI buildout.
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> What Joe is thinking about today
>Today’s Non-Farm Payrolls report was not good. But it’s more than that. There was something ominous about it. Or like it was a glimpse into a weird future.
Let’s just start with the data. The actual headline numbers weren’t really that big of a deal. Headline job gains came in at 73K vs. expectations of 104K. Not the end of the world. The unemployment rate ticked up to 4.2%, but that’s what economists were forecasting, so that’s fine.
>However there are two mega-asterisks everyone’s paying attention to.
>First was the revisions. According to the BLS, the last two months of job gains were overstated by 258K. Those solid post tariff reports? An apparent mirage.
>But then also, look at what sectors are adding jobs. From the report:
>In July, health care added 55,000 jobs, above the average monthly gain of 42,000 over the prior 12 months. Over the month, job gains occurred in ambulatory health care services (+34,000) and hospitals (+16,000). Social assistance employment continued to trend up in July (+18,000), reflecting continued job growth in individual and family services (+21,000).
>73,000 jobs were added in July, and 73,000 of them can be attributed to two low productivity sectors that increase mechanically almost every month, as society gets more old and infirm. Everything else is stalling at best. It’s actually worse than stalling.
>As Matt Boesler noted, “Without health care, the last three months of payroll gains look like this: -53,000 in May, -45,000 in June and -300 in July.”
Of course, we know in reality that it isn’t just health care and social assistance that are growing. There’s that whole AI thing going on, which is helping to lift the entire stock market to record highs. Yesterday alone, Meta added about $200 billion to its market cap.
>Generally speaking the other big tech giants are more or less riding the same wave. It’s great for shareholders, and it’s great for some workers. Again with Meta, it’s been hiring top AI talent with compensation packages that are in line with professional athletes.
>But if you ignore this very small slice of elite AI talent, the labor market within tech doesn’t look that great. Microsoft has been another huge AI winner, with its cloud business growing like crazy. And yet even they’ve been cutting jobs. Its CEO Satya Nadella even posted a memo about how the pace of layoffs at his company have been “weighing” on him.
This is a weird state of affairs! Normally when a company’s profits and stock are booming, you just sort of assume them to be in hiring mode.
>So if you just think about the current state of the US economy, there’s something vaguely futuristic about it. A very tiny handful of people getting generationally wealthy (and powerful). A broad swathe of people seeing their personal balance sheets improve, because the stock market’s been so hot (you could argue that the stock market has become something of a privatized UBI for people fortunate enough to have bought in). And then the only areas of actual widespread jobs growth being in areas that are tied to aging and health, much of which is sustained by widening deficit spending.
What we’re not seeing is any kind of general expansion in activity across the economy.
>A bad jobs report here or there is not the end of the world. They happen from time to time, and people freak out, and then forget about it. However the specific contours of this moment feel like a glimmer of a stranger, less comfortable future.
It’s interesting to observe the market today. 2-year yields are down sharply (about 21 basis points), as you would expect, because the weakness in the data make the case for sooner cuts and more of them. Odds of a September rate cut are now at 88%. Just yesterday they were less than 40%. And yet the action at the long end of the yield curve is less dramatic, with the yield on the 10-year down closer to 15 basis points. The market is telling us that over the long-term, conditions will still warrant elevated interest rates, even if we’re in a moment of stall.
In fact, this is generally a problem for both the Fed and The White House. Today’s data certainly makes the case for cuts look stronger. In fact at 8 AM this morning, Fed Governor Waller put out a statement, explaining why he voted for a cut this week, and the argument holds up well. But if the goal is to revive the housing market, or to reduce interest payments on the debt (which seems to be what Trump is interested in) it’s not clear that we’re going to get much juice from the squeeze on cuts.
Part of the problem is that for all this softness, inflation is still on the warm side. There’s clearly been a lot of progress made over the last couple of years on inflation, but just yesterday we saw Core PCE come in at 2.8% year over year. And the prior month was even revised up a little bit.
>Going back to the whole labor market, you can’t just ignore categories like healthcare and social assistance. Those are real, needed jobs. They count. But they’re low productivity areas, growing for somewhat mechanical reasons. Their growth does not speak to an economy that’s exhibiting generally rising prosperity or dynamism.
>I guess I’d conclude by saying that today’s report makes it easy to envision what a stagflationary environment looks like: An economy that exhibits mediocre growth across many sectors, but which sustains a fairly high level of resource utilization, because there’s so much demand for social assistance (soaking up labor), and demand for electricity and certain types of industrial gear (soaking up capital) due to the AI buildout.