July Employment Comes in Weaker Than Expected

Chief Economist Eugenio J. Alemán discusses current economic conditions.

Nonfarm employment numbers seem to be following the same script as the disinflationary process for the Federal Reserve (Fed), that is, they are both slowing, but not enough for the Fed to stop worrying about hitting its 2.0% inflation target going forward and, not enough to end this rate hike cycle. For now, and according to the June Summary of Economic Projections (SEP) ‘dot-plot,’ the Fed still has one more 25 basis point increase for the federal funds rate before the end of this year.

However, this could change after the September Federal Open Market Committee (FOMC) meeting, which is scheduled to take place on September 19-20 as the FOMC is also scheduled to publish a new SEP and there will be an updated ‘dot plot’.

We pointed out, after the nonfarm payroll in June, that there were several indicators in that report that were, potentially, signaling weakness in the jobs market going forward. One of these indicators was the temporary help services jobs sector. That sector shed 20,200 jobs in June and another 22,100 jobs in July. The graph below shows what typically happens to temporary help services jobs before recessions even though 1991 and 2003 were atypical periods. However, the sector tends to signal some weakness in the labor market and this time around it seems that the signal continues to point to weakness ahead.

Nonfarm Payrolls Temporary Help Service Jobs