Stuck In Neutral

Private nonfarm employment growth slowed in August, according to ADP. “Today’s ADP National Employment Report suggests that the trend in employment moderated somewhat in August at a pace below what would be consistent with a stable unemployment rate.” That’s in keeping with the recent slippage in economic activity generally, and so it’s not terribly surprising. Today’s numbers suggest that we should moderate our expectations for this Friday’s employment report from the government.

“The steady decline in government stimulus is bringing to light an underlying weak economy incapable of generating enough jobs to reduce unemployment,” Madeline Schnapp, director of macroeconomic research at TrimTabs, tells “Worse still, it appears that the slowdown is accelerating, increasing the risk of recession.”
John A. Challenger, CEO of Challenger, Gray & Christmas, tries to put a positive spin on the numbers by reasoning that “July job cuts spiked as a result of a handful of surprisingly large job cut announcements in the private sector. It is too soon to tell whether those cuts were an anomaly, but they appeared to be driven by industry- and company-specific trends, as opposed to larger economic ones.”
We’ll know more with Friday’s update from the Labor Department. Meanwhile, it’s clear that private-sector job growth is slowing once more. It wasn’t all that impressive to begin with and it’s even less robust now. But assuming we don’t sink further in the months ahead, I’m still not convinced that there’s a new recession lurking. But it’s still touch and go with economic reports and so there’s not much confidence that what we see today will hold up. It’s easy to get whipsawed if you follow the data closely, but the bigger picture suggests that we’re simply not breaking out of the sluggish recovery that’s prevailed all along. It could get worse, of course, and eventually it will. Recessions are inevitable… eventually. For the time being, the argument that we’re likely to muddle forward is still a reasonable guess. The latest numbers on personal spending and income, for instance, offer some modest hope on this front.

Meantime, the retreat in job growth in the ADP report implies that the more widely followed government data on Friday isn’t likely to surprise on the upside. The consensus forecast calls for a net rise of 110,000 private-sector jobs for August via the Labor Department’s calculations, according to That would be a substantial fall from a gain of 154,000 in July. “It seems to me Friday’s number from the BLS could be a good deal weaker than the number we’re reporting today,” Macroeconomic Advisers LLC Chairman Joel Prakken said earlier today.

In short, more of the same is the path of least resistance. The labor market remains weak, but it’s still growing. That leaves us (still) in a gray area and waiting for another catalyst to move us out of this neutral zone. A rebound in the housing market would do the trick, but that’s not likely in the near future. Exactly how and why we’ll move out of this cyclical rut, and in what direction any change will take us, are questions that are still open for debate.