Overview
The Federal Reserve wanted to cool the labor market, and it got what it wished for whether it likes it or not. Employment data released this week was nearly uniformly weaker than it was previously. Wall Street can be panicky and fickle, of course, but its initial reaction to data on employment and unemployment benefits certainly was not positive.
Prior to the employment data’s release, the Fed this week had signaled that a long-awaited interest rate cut could come in September. The goal of higher interest rates was to cool the economy and, therefore, inflation. Price gains have been moderating, and prices have even been falling in some sectors. We will see if that trend continues when the Consumer Price Index is released August 14.
Employment situation
The U.S. added just 114,000 payroll jobs m/m on a seasonally adjusted basis in July, according to preliminary data from the Bureau of Labor Statistics. The increase was the second smallest since the initial recovery from the lockdown months in 2020. The smallest was 108,000 in April of this year. BLS also revised May and June estimates downward a bit.
The unemployment rate rose to 4.3% for the highest reading since October 2021. That rate is in line with the 4.4% average during the period of 2015 through 2019. The number of unemployed individuals rose by
352,000, which is the largest increase since August of last year. The level of unemployment increased for a fourth straight month, something that has not happened since the Great Recession
The labor force rose for the second straight month, and the labor participation rate ticked up to 62.7%. The number of people working part-time for economic reasons rose to its highest level since June 2021. Exactly half of the seasonally adjusted increase in overall employment came from just one major sector, private education and health services. Essentially all of that gain came in health care.
Other sectors seeing substantial gains were construction (25,000 jobs); leisure and hospitality (23,000 jobs); trade, transportation, and utilities (22,000 jobs), and government (17,000 jobs). The information sector shed 20,000 jobs. Others with notable decreases were “other services” (5,000 jobs) and financial activities (4,000 jobs).
Within trade, transportation, and utilities, most of the job growth was in transportation and warehousing, led by gains of nearly 11,000 jobs each in couriers and messengers (or, less formally, parcel and local delivery) and warehousing and storage. Employment in support activities for transportation also increased. Offsets in the category were a sharp drop in jobs within transit and ground passenger transportation and declines in several other sectors, including trucking.
ISM manufacturing index
The Institute for Supply Management’s manufacturing index fell 1.7 points in July to 46.8%. The index has now been in contraction territory for 20 of the past 21 months. The one reading in expansion was just barely so at 50.2%.
The production component dropped 2.6 points to 45.9%. The new orders component declined 1.9 points to 47.4%. The employment component saw the most deterioration.
Another worrisome component for freight is the very low levels of order backlogs, which was the weakest of all 10 ISM index components.
Trucking Spot metrics
Broker-posted spot rates in the Truckstop system declined during the week ended July 26 (week 30). Van rates remained higher y/y, although their positive comparisons tightened. Flatbed spot rates were marginally below the same 2023 week.
Canadian rail labor dispute
A potential Canadian rail strike continues to approach without a resolution. CIRB, Canada’s labor relations board, is expected to announce its decision by August 9 on what the scope of a strike might be. For example, CIRB could order that certain commodities are essential and must continue moving by rail. If the ruling came on August 9, a work stoppage theoretically could begin as early as August 12.
Both Canadian Class I CEOs addressed this issue directly in their quarterly update calls. CPKC CEO Keith Creel said that he expected that a rail strike will begin around the end of August.
CN CEO Tracy Robinson stated that some ocean shippers have already begun rerouting container traffic to U.S. ports to avoid the uncertainty surrounding the labor dispute.
