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Headed back to Oz

September 26, 2022

See the man behind the curtain? Pay no attention to him. We’ve heard that one before, back in Oz, right?

Well, as the government points to one month of favorable employment figures, it’s essentially telling us exactly that – we can’t be in a recession, despite signs saying otherwise.

In July, the Bureau of Labor Statistics reported that employment rose by 528,000 jobs and the unemployment rate dropped 0.1% to 3.5%. Those figures crushed Wall Street expectations, which invited a narrative of strong employment giving the Federal Reserve has plenty of room to fight inflation.

Of course, that means the Fed will keep raising interest rates. If the economy keeps adding jobs to the nearly 11 million unfilled roles already, we should be able to handle tighter economic conditions from higher rates.

But inspecting the jobs report further, there are red flags.

For instance, nearly 73% of the jobs added in July were part-time roles (384,000 of 528,000 jobs). As that occurred, the economy lost 71,000 full-time jobs.

Also, 92,000 people added a second job. This trend has been picking up since March 2022. In fact, the biggest monthly gains were part-time workers in service industries, like restaurants. While jobs lasting between one and three months picked up, jobs of all other durations declined.

Lastly, there was a drop in the labor participation rate, so fewer people are working overall. Plus, with inflation high and the Fed increasing interest rates, the number of job openings has been decreasing. You’ve likely seen in the news how companies are pausing hiring or laying off workers.

To be sure, the headline of adding more than 500,000 jobs is great. However, the details show an uglier reality – people are basically being forced to take additional work to make ends meet.

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