Jobs Market Weaker Than Headlines Show – 36K Monthly Average

The June payroll report landed on Thursday instead of the usual Friday, buried under the July 4th holiday and the 250th anniversary celebrations. A lot of people missed it. The headline number was bad enough: the economy added 57,000 jobs, about half the consensus estimate. April and May were both revised lower.

The number that matters more sits deeper in the report. Average monthly job growth over the past 12 months sits at 36,000. The series, pulled from the St. Louis Fed's FRED database, shows that one weak month can be noise. Two or three months can still be revised away. A year of 36,000 per month is a trend.

That trend does not by itself mean recession. It does mean the economy has so little momentum that a single shock could tip it over.

The credit markets are not flashing red. The Chicago Fed's National Financial Conditions Index for June came in at -0.5. The index is built so zero is normal and negative numbers represent loose conditions. The National Activity Index for May was -0.10, slightly below the long-term growth trend. Together they describe an economy running roughly on trend, with the weak jobs numbers acting as a drag.

That drag narrows the margin for error. A trade escalation or a spike in oil prices could push the labor market from weak to contracting. The Federal Reserve's next move will depend on whether the July and August prints confirm the 12-month trend or revert toward the consensus.

The next payroll report is due Aug. 1. That will be the first real test of whether June was an outlier or the beginning of something worse.