By Christopher Decker
What a difference a job report makes. Earlier in the summer, people were worried that the economy was too hot. But now – in response mainly to weaker-than-expected employment data released on Aug. 2, 2024 – stocks are plunging. Some analysts even worry that a recession could be on the horizon.
As a professor of business economics, I beg everyone, from investors to consumers to policymakers: Please calm down, take 10 deep breaths and relax. The economic data, taken together, paint a brighter if more complex picture.
Why investors are flipping out
When the most recent U.S. jobs report was released, the market wasn’t happy. “Dow plunges nearly 1,000 points after report shows sharp drop in U.S. hiring,” read one headline. When the Dow closed on the day of the report, the index had lost about 2% in value compared with the previous day’s close.
The sell-off has intensified, with global stock markets plunging further after investors had a full weekend to absorb the jobs data. The Dow, the S&P 500 and Nasdaq composite all posted losses on Aug. 5. The Japanese Nikkei also closed 12% lower, a significant drop.
The report that sparked all this turmoil found that the U.S. economy had added a mere 114,000 jobs in July 2024 – lower than the expected 175,000.
Those figures were widely seen as disappointing; As CNN put it, they raised concerns “the job market is slowing too quickly and could trigger a recession.” Many news stories noted the report had triggered an indicator known as the Sahm Rule, which, in the past, has reliably signaled a recession.
In response to this perceived recession threat, many people have been criticizing the Federal Reserve for not cutting interest rates sooner. U.S. Sen. Elizabeth Warren, for one, said the chair of the central bank “made a serious mistake not cutting interest rates.” She added, “He’s been warned over and over again that waiting too long risks driving the economy into a ditch.”
While the Federal Reserve is expected to cut rates in September, critics are calling for it to pick up the pace.
But all of this – the sell-off, the entreaties to Fed Chair Jerome Powell, the talk of a “hard landing” – is premature.
Don’t panic
It’s true that the latest jobs numbers were lower than expected. It’s also true that stocks closed lower on the day the figures were released. But that doesn’t prove a recession is imminent or that the Fed has mismanaged the economy, and it doesn’t mean anyone’s 401(k) is in danger. It simply means that the economy is slowing down – and, I might add, this is expected.
That’s because the Fed has been trying to slow the economy in order to lower inflation. Since May 2022, its strategy has been to gradually ratchet up interest rates, which slows demand, which in turn reduces pressure on inflation. If successful, this strategy is believed to guide the economy to slower growth and a lower – more stable – inflation rate, while averting a recession. It is, in other words, the famed “soft landing.”
The jobs data also tells a more complex story than the headlines suggest.
True, there are indications of layoffs. Agriculture machinery giant John Deere has been in the headlines for planning to lay off about 600 workers. The computer chip manufacturer Intel is also planning job cuts.
The report itself notes net jobs losses in the auto industry, information services and temporary work.
To be sure, the impact of these job losses on individuals and their families should never be diminished. However, while some sectors were shedding jobs, others were adding them: The construction, transportation and health services fields all saw employment gains.
Such mixed signals across sectors are quite common. They’re a sign that the job market is slowing in aggregate – and that’s very different from a recession, during which layoffs tend to be seen across the economy.
It’s also worth considering the broader context. While the latest figures were disappointing, this has been the exception, not the norm, of late. Since at least January 2024, the U.S. job market has been exceeding expectations
The U.S. economy added a whopping 272,000 jobs in May, for example – well ahead of the 180,000 that analysts expected. At that time, some people were criticizing the Fed for not doing enough to slow the economy – the opposite of Warren’s current complaint.
So what does the July 2024 jobs report portend? In the end, I think it simply means that the economy is slowing down. Higher interest rates are dampening demand, encouraging slower job growth and reducing pressure on wages and prices. This is what a soft landing looks like. With even the softest of landings, a bit of turbulence can happen.
Before overreacting any further, market watchers might be better off turning their attention to two reports that come out before the Fed’s September meeting: the next inflation report, due out Aug. 14, and the August jobs report, due out Sept. 6. If consumer price index growth is 2.75% or less, and the job growth is again slower than expected, then the Fed will almost certainly shave 25 basis points off rates in September.
While I’m sure there will be a chorus of pundits complaining the rate cuts will be too small, a period of steady rate cutting is coming.
Christopher Decker is Professor of Economics at the University of Nebraska Omaha.
The Conversation arose out of deep-seated concerns for the fading quality of our public discourse and recognition of the vital role that academic experts could play in the public arena. Information has always been essential to democracy. It’s a societal good, like clean water. But many now find it difficult to put their trust in the media and experts who have spent years researching a topic. Instead, they listen to those who have the loudest voices. Those uninformed views are amplified by social media networks that reward those who spark outrage instead of insight or thoughtful discussion. The Conversation seeks to be part of the solution to this problem, to raise up the voices of true experts and to make their knowledge available to everyone. The Conversation publishes nightly at 9 p.m. on FlaglerLive.
JimboXYZ says
Tell that to the people that were let go at John Deere plants. Soft landing ? Really. 4 years of inflation is no soft landing, it’s a recession. Tell those that became homeless, foreclosed on, getting food from a food bank still that this was a soft landing. The one’s that were still getting paid as essentials during the pandemic, that never missed a beat from March 2020-present that this is a soft landing. The new norm of unaffordable is all Biden-Harris rolled out for anyone. And this reaction is panic at the concept that Harris-Walz might very well be in power for 2025-2028 before anything can be voted to change that.
“Christopher Decker is Professor of Economics at the University of Nebraska Omaha.”
I’ll go out on a limb that this egghead of an expert, doesn’t worry about his individual/personal economics ? They’ll just increase tuition for the next round of unaffordable education that needs a bailout or loan debt forgiveness. That seems to be the solution for the last 3.5+ years, just in case you haven’t been paying attention ?
Nephew Of Uncle Sam says
The market was volatile under your orange god, even with this blurp on the radar the market is higher than when the Grifter in Chief left office. The market does this every now and then, your Economics Teacher should have taught you that at least.
Ray W. says
Perhaps a little context might help FlaglerLive readers.
JimboXYZ focuses on 600 John Deere layoffs as one facet of his claim that we have been in recession for the past four years.
Anyone can look up the monthly BLS JOLTS report. The next one comes out August 16th for the month of July. In the most recent report, as it always does, the BLS reports on “separations”, which are defined as “quits, layoffs and discharges, and other separations.” Three different categories rolled into one overall number.
Total Separations in June 2024? 5.1 million, which was reported as “little changed” from May. Over a 12-month period, the number was down 544,000 from June 2023.
Quits in June 2024? 3.3 million, which was reported as “little changed” from May. Over a 12-month period, the number was down 434,000 from June 2023.
Layoffs and discharges? 1.5 million, which was reported as “little changed” from May, “and the rate decreased to 0.9 percent (Yes, JimboXYZ, the percentage of layoffs and discharges decreased over the previous month).
Other separations? 314,000, which was reported as “little changed” from May.
On average, in June, which has 30 days, 50,000 workers were laid off or discharged, yet JimboXYZ seems to think 600 John Deere layoffs are proof of a recession.
Innumeracy is an inability to speak, know and understand the meaning of numbers.
Since 1968, the average number of people applying for unemployment insurance benefits has averaged some 365,000 per week. For a long stretch dating back to the pandemic, the number has been below 300,000 per week. When I last checked the rolling four-week average, it was 245,000 applications per week (35,000 per day over a week). Some economists claim this is because people easily find other jobs.
The total number of posted job openings in June was 8.184 million, still a relatively high number. With 5.1 million people separating from their jobs in June, an average of 170,000 per day, it is easy to determine that 135,000 people per day who are laid off or discharged do not apply for unemployment insurance payments. Can it be argued that these workers easily find other jobs?
Is it possible that JimboXYZ is mixing up his numbers? Accidentally? On purpose? Or is he simply innumerate?
We have roughly 335 million people living in America right now, give or take a few million, depending on whether you believe televangelists who spout numbers that when checked are demonstrably false.
The labor participation rate is at 63.7%, which is considered a good rate.
The national economic numbers are staggering in scope. We have a $35 trillion debt, caused in significant part by the Trump administration’s policies. Our GDP is rapidly approaching $30 trillion.
JimboXYZ tries to force his microeconomic narrative based on one factory’s temporary or permanent decision into a macroeconomic world that is vastly beyond his (and my own) comprehension. We are not in recession at a macroeconomic level, and we haven’t been in recession since 2020 during the economic devastation caused by the pandemic.
As an aside, Fed Chairman Powell repeatedly comments that the economists who comprise his team do not rely on monthly economic reports for their recommendations. They consider them, but the most important ones, the ones on which they rely the most, are year-over-year numbers, or rolling averages.
Yes, for three months earlier this year, the inflation rate ticked upwards, yet the rolling average over 12 months keeps lowering.
Will we see a lending rate cut after the next Fed meeting in September? Perhaps. If the Fed team relies primarily on long-term trends, then a one-month drop in jobs added might just be a blip. Worthy of notice, but not worthy of decision. On the other hand, it might presage a larger downturn.
The author was right in recommending caution and avoiding overreaction. Sometimes, the experts are just smarter, better educated, more intelligent, and more experienced than the lay FlaglerLive commenter like me and JimboXYZ.
By the way, can it be argued that JimboXYZ’s comment that people are panicking at the thought of a Harris/Walz administration is a sign of Kamala Derangement Syndrome? We have 90 days to go. The weirdness is going to ratchet up and up. Next thing you know, JimboXYZ will be claiming that today’s gasoline prices are because the U.S. is extracting record amounts of crude oil under the current administration’s policies. If only we were to go back to the last administration’s lower extraction numbers, surely the price of gas would fall (snark intended).
Laurel says
JimboXYZ: Same ole, same ole. We’re in a recession, huh? There have been biased commenters who have been crying “a recession is coming” for several years now. You know, if they keep saying it, eventually they will be right, like the broken clock is right two times a day.
I knew the Biden-Harris complaint was soon to be replaced with Harris-Walz complaints. Thanks for the predictability.
John Deere announced they were laying off 600 employees “trimming the fat off the production line.” Some companies are laying off people to have a higher profit margin. Your higher prices are due to corporate greed.
Unemployment is low. We have had homeless forever. We have had food banks forever. The annual inflation rate in June was 3%. C’mon. Get current…
…or continue to ignore it.
BillC says
Blah blah blah. Trump killed over a million Americans with his gross incompetence handling the Covid pandemic.
Try reading “Rage” by Bob Woodward, where he interviews Trump many times both in person at the White House and over the phone when Trump would call Woodward. For example, on Feb 7, 2020:
“It goes through the air,” Trump said. “That’s always tougher than the touch. You don’t have to touch things. Right? But the air, you just breathe the air and that’s how it’s passed. And so that’s a very tricky one. That’s a very delicate one. It’s also more deadly than even your strenuous flus.”
But Trump spent most of the next month saying that the virus was “very much under control” and that cases in the US would “disappear.” Trump said on his trip to India on February 25 that it was “a problem that’s going to go away,” and the next day he predicted the number of US cases “within a couple of days is going to be down to close to zero.”
feddy says
Great comment.
Jim says
I didn’t realize you were an economist. So we are in a recession? Really? I hate to break it to you but companies like John Deere do lay people off when their sales are down. And it’s bad for the 600 being terminated but if you had the ability to look a little farther afield, that is not the overall situation for the country at this time.
Further, I’d note that you say inflation has been going on for four years. Unless math fails me, Trump was president four years ago (as I understand it, each president gets a four-year term and Biden’s doesn’t end until January 2025…). I guess inflation started under Trump and Biden inherited it per your statement! I wouldn’t disagree with you – Trump’s policies led to a massive increase in the national debt (fact check that) and his disastrous handling of the Covid pandemic lit the fuse for inflation. I know you don’t understand that but it’s true. I’m sad you feel the way you do. I do hope Harris-Walz carry the election and we’ll see how the country does for the next four years…. Perhaps the stock market will continue to set new records for growth! Of course, if Trump gets elected and the economy tanks, you’ll be first to blame it on Biden so frankly it’s boring to even discuss your knee-jerk remarks.
MaccaWannabe says
Alas, I too would love to pin the financial woes of our country on the politicians I scorn and ignore the eggheads that spend their lives evaluating facts & figures and studying these things vs my own knee jerk, armchair wisdom. Facts get in the way of my opinions too which is also bothersome. However if I look at the inflation rate a few years back, we were at 8% and today we are a 3% so our current crop of politicians appear to have taken notice and have been (successfully) working to manage inflation. (so yes, a few brownie points for Joe on this). So why do we have ‘weird’ inflation in the first place? Was it Trumpian fiscal policy that filled the pockets of this narcissist and his filthy rich cronies? I’d love to think so but sigh, no. The studious ‘eggheads’ that again, spend their lives studying these things tell us; volatility of energy prices, supply chain issues due to COVID-19, and price changes in the auto-related industries are more likely culpable. So I can’t blame Donny, you can’t blame Joe and here we are.
Samuel L. Bronkowitz says
Degrees that should be abolished: theology, astrology, economics
NJ says
This Economics “EXPERT” FAILED to consider the Very High Credit Card Debt!!! We are in the beginning stage of a Recession which was FORCED on Americans by the 140% increased cost of energy!!! “The Law of Supply and Demand”-Economics 101
Sherry says
BTW. . . the Dow and Nasdaq both closed sharply higher today. Even with the recent down turn, the Dow is up over 27% since President Biden took office. Just take a look at your 401K plans.
We have a capitalistic economy that is focused on maximizing profits. No President controls grocery, oil, insurance and rent prices, etc. “Climate Change” storms and fires are driving up insurance costs. Too bad many Republican politicians claim Climate Change is a hoax and they do everything in their power to STOP efforts to slow it down. Remember how trump bragged about rolling back regulations. . . too bad there aren’t any regulations to stop price gouging!