两位经济学家：最新经济数据暗藏危险信号

The Bureau of Labor Statistics job report for June contained a pivotal number that may well raise the first convincing statistical signpost that the U.S. economy has made the turn and is heading for a recession. That’s the view of two top economists, one from Wall Street, the other from academia, who closely watch the employment figures to spot enduring trends, as well as weigh what the Fed-engineered money supply shrinkage, and apparent determination to keep hiking rates, foretell for the path forward. “This jobs report harbored the first indicator that the U.S. will slow down a lot, and by our forecast enter a recession, in the second half of 2023,” says Eugenio Aleman, chief economist for brokerage Raymond James. Adds Will Luther, an economics professor at Florida Atlantic University, “When the jobs numbers are suddenly pointing towards weakness and rapidly falling inflation, the Fed’s plans to keep over-tightening puts the economy on dangerous ground.”

The surge in city and state employment masks the softness in what matters most: Private jobs

For both economists, the big warning sign in the BLS stats, released on July 7, was the tepid increase in private jobs that continues a steady downward trend. The headline number for June was what appeared to be a fairly robust gain of 209,000 total positions. But an unusually large contributor was the 60,000 rise in government jobs, representing nearly 30% of the total increase. In fact, government hiring—almost entirely generated at the state and local levels—has already created a towering 371,000 jobs in 2023, 36% more than the figure for all of 2022, and 90% beyond the full-year count for 2019. In that last pre-pandemic year, one in eight newly-employed Americans went to work in the public sector, versus the one-in-three reading for June.

By contrast, businesses big and small added only 149,000 workers in June. That compares to average monthly advances of 344,000 in 2022 and 216,000 in 2019. Especially revealing is the cascading trajectory. The private sector’s headcount swelled by 461,000 in January in a last blowout before the upward slope flattened to 180,000 in February. Since then, the numbers have mostly been falling month after month. But the government tally has stayed consistently strong, giving the BLS’s monthly headline-makers an unsustainable lift. Upshot: Once you strip out the government bulge, the private job creation numbers are feeble, and getting more so.

Why big government hiring can’t last, and why the private hiring will get even weaker

The public sector’s hiring binge will prove temporary—for a basic reason. Governments are playing catchup following sharp cutbacks enacted during the pandemic to offset collapsing tax revenues. From early 2020 to mid-2021, the combined state, local and federal rosters shrank by 1.5 million. Since then, government share has gradually and steadily regained ground. But as the June BLS reported stated, it remains 0.7% below the February 2020 mark. “We’ve seen a reversal of the 2021 and 2022 trend this year,” says Luther. “Public payrolls have gained, and private payrolls have slowed quite a bit.” He explains that companies’ ability to raise pay far faster than the arms of government gave the private sector the edge in attracting workers as the economy healed from the pandemic’s ravages. “The higher pay enabled the private sector to scoop up the lion’s share of workers in 2021 and 2022,” says Luther. “Just as the private sector raced to get back to pre-pandemic numbers, the public sector’s making that adjustment now, with a lag.”

Luther explains that the the boom in public hiring is nearing an end. “The big numbers could continue for a couple more months,” he notes. “But as the public numbers get closer to where they were in early 2020, they will slow substantially.”

For Aleman, the mix of employment categories that are rising and retreating point to a fading outlook. “The main areas that grow in slowdown periods are health care services and social services, and they were the leading job-creators in June,” he says. Together, the two sectors accounted for 44% of the total gains. “They are not indicators of a strong economy!” adds Aleman. “If you look at retail trade, wholesale trade, transportation, and warehousing, the parts that perform well in a rising economy, they did relatively poorly. Of course, a lot of this weakness was understated in the overall numbers because of the outrageous degree of government hiring.”

The jobs numbers point to a looming recession

The frail private sector reading for June is a crucial harbinger. “It’s the first indication that the U.S. will slow a lot in the second half of 2023,” says Aleman. “The weakest link in the economy is the employment side.” He expects that overall job growth, including for government, will fall below the 100,000 level in the coming months. “We’ve already created 85% of the jobs generated in 2019 when the economy grew by 2.2%,” he says. “Unless the economy accelerates, there’s no reason to hire more workers.” Instead, he views tough times ahead, where a tumbling labor market drives the downturn. In Aleman’s outlook, GDP, following a rise of 2.1% in Q1 and by his estimate, 1.3% in Q2, will expand at just 0.2% in the current quarter. Then, he expects the U.S. to enter a downturn that will send growth negative by 1.1% in Q4.

For his part, Luther reckons that the Fed’s misguided policies are quickening the pullback in the private labor market. The central bank inflation-fighting measures, he asserts, are so overly severe that they’re risking an unnecessary recession. “The Fed has made it clear that it will raise rates by 25 basis points in July and raise another 25 basis points after that,” he says. “So they are determined to lift ‘nominal’ rates substantially above today’s number of 5.0% to 5.25%. But inflation is also falling. So Fed simply left rates where they are, the ‘real’ or inflation-adjusted rate would keep rising as the rate of inflation falls.” Instead of letting a falling CPI lift real rates, he asserts, the Fed is taking an overblown, double-barreled approach by lifting the official rate, too. “The net effect is that as the two levers, the Fed’s increases and falling inflation, kick in, real rates will go far higher,” he says.

It particularly dismays Luther that the Fed concentrates excessively on the current measures of “core” inflation that excludes food and energy, and is strongly influenced by housing costs. “The Fed is using rental metrics that are more than a year old,” he maintains. “They show old rental costs that are much higher than the current costs. Hence, the Fed relies on inflation data that’s out of date, and too high. Now they’re overestimating inflation.” The Fed’s clampdown will raise borrowing costs so drastically in relation to families’ incomes and companies’ revenues that the pricier home and credit card loans will crimp consumer spending, and the high bond yields will hammer investment in job-generating new plants, fabs and distribution centers.

Luther believes that the Fed may fear the optics if it suddenly changes course, even though he believes that’s the correct path. “The Fed may view that since the official inflation numbers remain high, it needs to send the signal that it will go all the way. The concern may be that if the Fed doesn’t show it’s vigilant now, inflation expectations may rise and become entrenched.”

But the downside to that strategy, he says, is costly in the extreme. “All of the over-tightening makes a recession far more likely,” he says. Put simply, the June private sector jobs number supplied perhaps the best evidence yet that inflation and growth are falling. The Fed’s already done its job. But now, it’s doubling down on mission accomplished of taming inflation and perhaps skirting a deep recession—and risks blowing the mission.