Trump-related jobs report reinforces signals hinting at potential economic recession
Job Market Slows Down: Significant Downward Revisions in May and June Jobs Reports
The latest jobs report for last Friday has revealed a concerning trend in America's job market. Over the past three months, hiring has slowed dramatically, causing economists to grow increasingly worried.
The sharp pullback in hiring over the past few months may be due to President Donald Trump's tariffs, according to Chris Rupkey, chief economist at FwdBonds. Businesses are reducing the number of new workers they hire, and some are even freezing hiring and changing their investments due to fear of tariffs and their potential impact on costs and the economy.
The large downward revisions to the US job totals for May and June 2022, which reduced the previously reported payroll gains by about 258,000 jobs combined, are significant. This sharp revision lowered the three-month average of monthly job gains to a new cycle low consistent with the start of previous recessions.
The BLS, which adds educated guesswork and uses seasonal adjustments to extrapolate data for the entire country, had to sharply lower May and June's jobs totals from their preliminary estimates. Some economists are using the word "recession" to describe the jobs report data.
However, Bank of America economists considered the revisions to be concerning but noted a silver lining in the fact that a considerable amount of the revisions were due to seasonal adjustments. Goldman Sachs economists stated that the revisions in the jobs report align with other inputs that analysts have been tracking.
If the 503,000 who dropped out of the labor force but still wanted to work had reported their job search to the BLS, the unemployment rate would have risen to 4.5% last month, as per Rupkey. The US economy has added an average of just 85,000 jobs per month this year.
These revisions matter for several reasons. They indicate a much weaker labor market than initially thought during that period. Jobs data are crucial indicators used by policymakers, investors, and economists to assess the health of the economy. A downward revision of this magnitude implies weaker job creation and hints at cooling economic activity.
Federal Reserve officials view such large revisions as typical of economic turning points, adding caution to their outlook on future monetary policy moves. Weaker job growth may reduce pressure to raise interest rates aggressively. The surprising downward revisions contributed to increased market volatility and criticism of the Bureau of Labor Statistics (BLS), leading to political consequences such as the firing of the BLS commissioner. However, these revisions are a normal and transparent part of the BLS methodology to improve accuracy as more complete data becomes available.
In sum, the downward revisions to the May and June 2022 job reports highlight a weaker labor market trend, which could foreshadow an economic slowdown or recessionary pressures. This affects policymaking, market expectations, and the evaluation of the economic outlook. Future revisions in the job market, given its slower pace of hiring, may be less dramatic than over the past several months.
Politics and business are closely intertwined in the recent downward revisions of the job market. The revisions, which suggest a weaker labor market, have raised concerns among business leaders, as they fear the potential impact of tariffs and economic fluctuations on their operations. Moreover, the general news surrounding the job market's slowdown may influence political decision-making, as policymakers reassess their economic strategies in light of these findings.
