The August BLS jobs report, along with other economic data released in the same week, provides a window into a labor market losing its resilience amid continued uncertainty. The economy added only 73,000 jobs while the unemployment rate increased to 4.2%.
The most shocking finding from the report was the massive downward revision of May and June’s job gains, from 144,000 and 147,000 to a measly 19,000 and 14,000, respectively. These revisions prompted the President to accuse the BLS commissioner of altering the numbers before firing her unceremoniously this month.
Revisions are an important part of the data collection process, where the BLS surveys businesses about the number of employees they have on payroll through the 12th of each month. Over the next three weeks, the data is cleaned, seasonally adjusted and then typically released on the first day of the next month.
These figures are considered preliminary estimates that are then revised based on new data from employers that submit their payroll statements late, along with other seasonal adjustment changes. These revisions are released in the two months following the initial report. The method is transparent and it is nearly impossible for the BLS commissioner to misrepresent any of the data that the agency releases.
While some downward revisions are common, the size of these revisions are larger than normal and indicative of structural weaknesses in the labor market. Revisions of this magnitude are typically signs of a major shift in the trajectory of the economy.
The revisions indicate that the only sector in the economy consistently adding jobs is the healthcare industry, while most other sectors remain stagnant. Last month, the healthcare sector added 55,000 jobs while all other sectors experienced very little growth.
The year-over-year job growth numbers have slowed to levels not seen since the start of the Great Recession of 2007 (excluding 2020). At a .97% rate, growth is now lower than what was seen during the 2019 pre-pandemic era, with the chances of a turnaround very unlikely.
Black Workers and College Graduates Hiring Difficulties
While the overall unemployment rate increased by only 0.1%, all racial and ethnic groups experienced an increase in July. Alarmingly, the Black unemployment rate surpassed the 7% threshold, reaching 7.2%. Black youth unemployment spiked to 21.7% compared to 13.4% in July of last year. Rising rates of Black joblessness is a major indicator of a labor market that is slowing down.
Additionally, the labor force participation rate of Black women has declined significantly this year. Though one can only speculate as to the exact reasons why, a deteriorating job outlook and attacks on DEI-oriented hiring and retention practices could be contributing factors.
While all college graduates are experiencing a difficult labor market, young men appear to be bearing the brunt of it. The jobless rate for young, male college graduates (22 to 27 years old) is now at the same level as that of non-college graduates, while young women college grads are experiencing a declining unemployment rate. This tracks with the rising percentage of young men who are opting out of the labor force altogether.
The jump in the unemployment rate was caused by more than 300,000 new entrants being added to the ranks of the unemployed. One partial explanation for why young male college graduates are experiencing such a difficult time finding stable employment is that they are over-represented in certain industries, such as the information technology field, that are undergoing a slowdown in hiring.
In contrast, women graduates who have flocked to the high-performing health care sector are faring much better. According to the Challenger job cuts report, the technology sector leads the private sector this year in job cuts through the month of July, with workforce reductions up 36% compared to last year.
The Possibility of Stagflation
The ISM Services employment index dipped to its third lowest level in 10 years (excluding 2020), while the price index rose to its highest level since October 2022. The combination of declining employment and rising prices raises the possibility of something worse than a recession: stagflation.
Stagflation is a combination of declining growth and rising prices. It is devastating due to the limitations it places on policy responses. When inflation is rising, the Federal Reserve responds by raising interest rates and then lowering them once more when job growth is declining to stimulate economic activity. When both are occurring at the same time, the Federal Reserve is in a catch-22, as its main tool to combat one problem exacerbates the other. As a result, stagflation is generally considered worse than a recession. In a typical recession where economic growth declines with no accompanying rise in prices, the Federal Reserve has a clear policy decision: lowering interest rates.
More people are becoming unemployed while the prices for basic necessities are rising. Additionally, the percentage of unemployed workers who have remained jobless for more than 27 weeks has risen to its highest level since the start of 2022. The main takeaway from the August BLS jobs report is that the economy has very likely reached a concerning inflection point, with a noticeable decline in hiring and an expected uptick in layoffs.
Unemployment rates will only get worse as more federal workers begin showing up in the unemployment rolls, tariff costs are increasingly passed on to consumers and student loan interest accrual and repayment take a bite out of consumer spending. The percentage of student loan borrowers in serious delinquency has reached the highest level in 21 years, which is all the more disheartening for new graduates already struggling to find employment.
With the sacking of the BLS commissioner and her possible replacement floating the idea of discontinuing the BLS jobs report, declining job growth and rising inflation, the economy has reached an inflection point. Next month’s slate of economic data releases will help verify if the labor market is simply passing over a bump in the road or headed towards a serious collision.
Joseph Dean is the Jr. Racial Economic Research Specialist with NCRC’s Research team.
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