July jobs report: Soft landing inflection point arrives
Daniel Zhao
Chief Economist at Glassdoor | Aug 2, 2024
The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor’s Lead Economist Daniel Zhao.
The July jobs report shows a job market at an inflection point. Jobs growth stumbled and unemployment rose in July, signaling that the job market is now cooling below a healthy temperature. The report today is a vibe shift away from the days of worrying about high inflation to the days of worrying about rising unemployment. The Federal Reserve’s decision not to cut interest rates at its July meeting was predicated on a resilient job market. If cracks in the job market are showing now, the soft landing will be at risk if relief in the form of rate cuts won’t arrive until September.
Key stats:
- Growth in payroll employment slowed to 114,000 in July down from 179,000 in June. Jobs growth came in under expectations, though the BLS noted that Hurricane Beryl did not have a “discernible impact” on the surveys.
- The unemployment rate rose to 4.3%, triggering the Sahm rule. The ongoing rises in the unemployment rate are a concerning sign through the lens of the most-popular recession indicator today.
- Average hourly earnings growth slowed to 3.6% from 3.9%, below expectations, as the cooling job market keeps a lid on wage growth.
Unemployment rate breaches key threshold
The unemployment rate rose to 4.3% in July, triggering the Sahm rule, a common recession indicator that triggers when the 3-month trailing average of the unemployment rate rises 0.5 percentage points over its 12-month minimum. The labor market has been a bulwark against recession fears over the last year, but rising unemployment points to cracks in the dam. The risk moving forward is that those cracks expand too quickly to be patched, especially as the Federal Reserve is expected to begin its rate cut cycle but not until it meets again in September.
The increase in unemployment over the last few months has been driven in large part by new entrants and reentrants rather than job losers. Even in July, the permanently layoff share of the unemployed actually fell as more of the increase came from workers on temporary layoffs, job leavers and reentrants to the labor force.
Additionally, the prime-age labor force participation rate actually rose to 84% in July, the highest level since March 2001, aligned with the idea that the rising unemployment rate is less due to layoffs and more due to sluggish hiring, which was also evident in JOLTS data from earlier this week.
However, that is not a reason to ignore the rise in the unemployment rate. A hot job market allows new entrants and reentrants to the labor force to directly enter employment, while the cooling job market now means more entrants are bottlenecking in unemployment, unable to quickly find a job.
Services drive slowdown in jobs growth
Payroll growth slowed to 114,000 in July 2024, below expectations. This slowdown was driven primarily by a slowdown in service-providing industries.
While private education and health services and government continued to add jobs at a healthy clip in July, these industries saw slowdowns from June to July. Health care and social assistance added 57,000 jobs down from 79,000 in June and government slowed to 17,000 jobs added from 43,000 in June. Construction notably continues to hold strong despite a cooling housing market.
Digging under the surface, government excluding education actually lost 12,000 jobs. Other white-collar sectors like financial activities (-4,000), information (-20,000), and professional and business services (-1,000) also all lost jobs. A modest acceleration in leisure and hospitality from 1,000 jobs added in June to 23,000 in July was not enough to outweigh the slowdown elsewhere.
To speak with Daniel Zhao about this report, please contact pr@glassdoor.com.
Daniel Zhao
Daniel Zhao is Chief Economist at Glassdoor. On Glassdoor's Economic Research team, he has conducted research using Glassdoor's unique data on a variety of topics affecting job seekers and employers ranging from the health of the job market to pay transparency to employee engagement & retention. His work has been cited in publications like the New York Times, the Harvard Business Review and more. Prior to joining the Economic Research team, he also worked on improving the user experience for Glassdoor’s consumer jobs product and mobile app. He holds a bachelor's degree in applied mathematics and economics from Harvard College.
