US Labor Report: Downward Revisions, Dead Indicators, & Debt

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the cliff-notes:

• the latest US labor report shows significant downward revisions to previous months' job numbers, with a two-month payroll net revision of -110,000 jobs
• full-time jobs decreased by 28,000 last month, while part-time jobs have risen, potentially reflecting a shift towards the gig economy and multiple income sources
• despite a 20% decline in temporary help services jobs, typically a recession indicator, the US has not entered an officially declared recession, possibly due to high debt-to-GDP ratios affecting traditional economic signals

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Friday saw the release of another US labor report, and as per usual, there were massive downward revisions to last month's reported numbers.

The two-month payroll net revision came in at -110,000 jobs—meaning that the reported jobs gained here in the United States have been overestimated to the tune of +100k in May and June's reported numbers.

Nonfarm payrolls were revised down by 54k in June, private payrolls were revised down by 36k, and manufacturing payrolls were revised down from +8k to 0, meaning that virtually no new manufacturing jobs were gained on the net last month.

Jobs are still being added in the US, but the rate of job growth is decelerating, and it is decelerating faster than what gets reported the first time around. Month after month, for this to occur so regularly, I'm leaning away from giving economists the benefit of the doubt that this is just an honest mistake and leaning towards this being intentional deception about the degree of resilience in the labor market:

Payrolls were once again revised down, marking 13 of the last 19 month's payroll reports overestimated with jobs that weren't actually there. Once is incidental, two to four times is a pattern, and any error occurring over 50% of the time is either stupidity or malice.

Either the economists in charge are very unintelligent, or there is a deliberate effort to mislead the public on the strength of the US labor market. The historical pattern during economic downturns is for labor market strength to be overestimated, and for it to be underestimated during expansions—however, this systematic pattern of overestimation suggests to me that if it weren't intentional, changes would be made to their data collection methods to fix it:

The number of full-time jobs in the United States fell by roughly 28,000 last month, having declined by ~1.5 million since this time last year. Part-time jobs have risen over the same year by ~1.5 million.

Much of this can be attributed to the rise of the gig economy, where it is growing more commonplace for people to hold 2 or 3 part-time roles rather than one job that takes up all of their time. Whether it's an e-commerce business or providing service work to multiple companies at once, Americans are trending in the direction of multiple income sources rather than just one.

Historically, the convergence of full and part-time jobs has signaled an oncoming recession, but that may not entirely be the case this time around thanks to this dynamic I just outlined. No doubt, some of the decline is due to a weakening labor market, but I wouldn't take this as proof-positive for a recession on the horizon in and of itself:

A great leading indicator for recessions has always been temporary help services jobs. The kind of roles that are around when the economy is booming, spending is up, and companies need more help than usual. This time around, temporary help roles are down 20%, and still no recession:

What gives? Why has this particular recession warning light been flashing red for over a year, yet we aren't in an officially declared recession? One explanation is that the U.S. debt-to-GDP ratio being above 100% for the last 9 years has diluted the signal that many historical indicators for economic health used to provide.

The federal deficit, in red, used to move in inverse lockstep with the unemployment rate, in blue. Since 2015, when the US' debt-to-GDP ratio broke above 100% and stayed there, the federal deficit has widened while the unemployment rate has fallen. At 122% debt-to-GDP today, accelerating federal debt growth plays a much larger role than it should play in US economic health. Just as a household that is reliant on endless borrowing is unhealthy, a nation that is in the same debt-fuelled mania is on an unsustainable long-term path:

Final thought: never take an establishment economist's word at face value.

Take it easy,

Joe Consorti

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