July Jobs Report: Positive Momentum in Construction and Manufacturing Amid Seasonal Adjustments

**SPEAKER_1** (0:00)
I want to break down the July jobs report even further. Joining me right now, Jeffrey Cleveland, Managing Director, Chief Economist at Payden & Rygel. Thank you so much for being with us. Jeffrey, great to see you there.
Look, I don't know that anybody expected to see minus the negative 23,000 jobs in the two prior months, revised over another 100,000 lower, fewer jobs created. You said in your notes, after months of a solid recovery, then you say, what gives? That was your phrase there, what gives?

**Jeffrey Cleveland** (0:36)
Yeah, it could be just something strange about July.
Maybe it's a summer seasonal adjustment issue, Nicole. I don't know. You had the big drag from governments, particularly local government hiring. To me, that reeks of seasonal adjustment error.
I take that with a little grain of salt. When you dip into some of the other sectors, we still saw some positive momentum from construction and manufacturing, which doesn't tell me it's a super amount of weakness in the labor market. So I don't know. If I'm an investor, I would step back and let's see the next month of data before we come to any very strong conclusions.

**SPEAKER_1** (1:18)
We worried when you saw this, granted the government jobs minus 53,000, a lot of that in education.
But some of the others like hospitality and leisure and retail saw some weakness, fewer jobs. Some were created in other areas like manufacturing, healthcare, construction. There were some bright spots. Did this worry you at all or no?

**Jeffrey Cleveland** (1:42)
Well, it is eye catching. You don't want to see a negative payroll month. I think we always advise clients and some of my colleagues to take a three month moving average, which shows you that private sector job growth is close to around 30,000 jobs per month right now.
Then I think you need a little bit further context. The labor force is also growing quite slowly. Now, this is for a couple of reasons, but the primary one, Nicole, is the aging population. We're just not seeing as much labor force growth. Actually, when you put it all together, we may need only around 30,000 jobs per month to keep the unemployment rate right around 4 percent, which is where it is for 4.1 percent in the month of July. So the days where you needed 200, 300,000 jobs, just to keep the unemployment rate stable, those are behind us and we just need around maybe 30,000 jobs or so. So I think that's an important little nuance to keep in mind.

**SPEAKER_1** (2:40)
The labor force participation rate, 61.4, lighter than expected. You got to go back to February of 21 to find a comparison.
I've been under the impression that labor force participation rate is not growing at all. You have the baby boomers that are no longer going to be working and the birth rate is not notable and immigration has fallen off. So why should I expect labor force participation rate to ever grow again in the near term?

**Jeffrey Cleveland** (3:11)
No, it's possible on a structural and a long-term basis, labor force participation, aggregate labor force participation rate will continue to move lower. I would point out though, if you want a positive spin, Nicole, on your Friday, in the report, if you look at prime age labor force participation, so those of us who are between, say, 25 and 55, that labor force participation actually ticked up.
If you look at the employment to population ratio for 25 to 54-year-olds, so looking at how many of people are in that bucket and of that, what proportion has a job, that also ticked up on the month. So that's some good news there. I think primarily what's dragging down overall labor force participation, we do have an aging population, we do have a lot of baby boomers leaving the workforce. That is not really a cyclical story, that's a more structural long-term story.

**SPEAKER_1** (4:09)
We had some room for that group to pick up because last month, that group in particular, the 25 to 54 group really was struggling, and that was actually at the lowest level since December of 2023 So that group had some room to move to the higher side. And I like the bright spots on a Friday. Appreciate that, Jeffrey. What about the 20 to 24-year-olds, which actually dropped?
I think it was 0.4 percent. What do you say to the young folks in this low, higher, low-fire environment? They want to start careers. How do you think they're feeling?

**Jeffrey Cleveland** (4:49)
Well, we continue to hire at Payden & Rygel Investment Management here in Los Angeles. So if you are, I would say if you're interdisciplinary, interested in a lot of different things, economics, history, philosophy even, you could look to us. We hired a solid group of undergrads this year. We continue to do that. So you have to look for areas where there is hiring. I do think we are seeing, though, Nicole, some weakness probably in junior analyst positions. It could be due to AI. It's possible.