The July jobs report should have been dedicated to the Hollywood classic, All About Eve where Bette Davis’ character Margo Channing warned partygoers, “Fasten your seatbelts; it’s going to be a bumpy night.”
The same could be said of the labor market, which is slowing down faster than expected and putting the Federal Reserve’s much-desired “soft landing” in jeopardy.
In July, the economy produced 114,000 positions, shy of the 185,000 that analysts predicted and lower than the 2024 monthly average of 203,000.
Further evidence of the deterioration in the labor market was seen in wage growth, which decelerated to 3.6% from a year ago, lower than 3.9% in the previous month.
The unemployment rate increased from 4.1% to 4.3%, the highest level since October 2021. Notably, July marked the fourth consecutive month where the unemployment rate increased. Since 1960, every time we have seen four consecutive months where the unemployment rises, we subsequently land in a recession.
The disappointing jobs report has put the Fed’s inaction at its July policy meeting in the spotlight. Although the central bank could cut rates any time it deems necessary (there’s no rule that they need to make announcements at their scheduled meetings), Fed watchers believe that the more likely scenario is that if data confirm further softening, the central bank would potentially cut rates by a half of a percentage point, rather than a quarter, at the September meeting.
Currently, investors are expecting a full percentage point (one half and two quarters) shaved off from the Fed funds rate by year-end. The acceleration of rate cuts has helped to boost the bond market, as income investors try to lock in interest rates while they are still elevated.
Stephen Brown of Capital Economics warns that we should be careful to “treat the July Employment Report with caution” because of the potential impact of Hurricane Beryl. In its report, the Labor Department said that Beryl “had no discernible effect on the national employment and unemployment data.” But Brown adds that “there are some signs that it played a role, with the number of workers absent due to the weather rising sharply.”
Even if the July report is revised in the subsequent months, there is little doubt that the economy is downshifting.
We heard from companies like McDonald’s and Starbucks that consumers are exhausted from high prices and are already reducing their spending on discretionary items like burgers and coffee. Whirlpool noted that consumers are “weary” and while some must buy an expensive appliance to replace a broken one, fewer are interested in forking over a lot of money to upgrade right now.
Anxiety over economic erosion is part of the explanation of recent stock market losses. Short term investors are worried that if the economy slows down too much — or (gasp!) lands in a recession — then consumers will pull back their spending even more, and companies will not be able to make as much money.
But most of us are long-term investors, looking beyond the breathless, moment-by-moment coverage. While you might be tempted to do something when markets spook you, remind yourself why you are investing and also that part of being an investor is enduring rough days, months and even years (remember 2022?).
Try to stick to your game plan and don’t let your emotions — or the big drops — alter your course.
Instead, go back to basics, like making sure that you have adequate emergency reserve funds that can cover 6-12 months of living expenses, pay down debt, especially higher interest credit cards and of course, fasten your seat belts — it’s going to be a bumpy night.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected]. Check her website at www.jillonmoney.com.
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