August 2024 Market Trends: Cooling down or Worse?

The market has recently been hit with a series of troubling events, raising serious concerns about the job market as we approach the year's end and beyond. The most recent shock was the sharpest decline in the stock market in the last two years, further fueling these worries.

To better understand what lies ahead, let's take a closer look at the job market trends from July 2024

July 2024 Job Market at a glance

1. Labor Force Participation Rate July 2024 - More People joined and rejoined the workforce

In July 2024, 420,000 people joined and rejoined the labor market, bringing the labor force participation rate up from 62.5% in June to 62.7%—a modest 0.2% increase. The trend remains steady, with no significant year-over-year change, maintaining consistent levels since July 2023.

2.Rising Tide of Unemployment: July 2024 Sees Highest Rate in Three Years

In July 2024, the unemployment rate reached 4.3%. While still below the long-term average and far from the alarming 14.8% peak during the pandemic in April 2020, this figure is causing growing concern. The 4.3% rate is the highest recorded in the past three years since 2021. Moreover, this marks the fourth consecutive monthly increase since March 2023. In July alone, 7.2 million people lost their jobs—an increase of 353,000 compared to the previous month.

(Source: US Bureau Statistics)

3. Job Growth Takes a Hit: The Surprising Plunge in July 2024

July 2024 delivered a surprising twist in the job market, with a staggering drop in new jobs added—just 114,000, nearly 50% below the average monthly increase (215,000) and a sharp contrast to the robust numbers we saw in May (216,000). Expectations were set high, with forecasts predicting over 150,000 new jobs. Instead, we witnessed a shortfall that not only missed the mark but also triggered a shockwave through the stock market, leaving everyone reeling.

(Source: Department of Labor)

However, let's put things into perspective. While July’s numbers were undoubtedly disappointing, they weren’t the lowest we've seen this year. That title goes to March 2024, when only 104,000 jobs were added. Despite the dramatic dip, this doesn’t necessarily signal a downward spiral. The job market has been a rollercoaster in 2024, with figures fluctuating month to month.

4. Wages Up, Jobs Down: July’s Surprising Shift in High-Pay Industries

In July 2024, the average hourly pay for all employees nudged up to $35.07 from $34.99 in June. Most industries saw a month-over-month boost in earnings, except for Mining and Logging, and Retail Trade.

Over the past year, average hourly pay has been climbing across all sectors.

But here’s the kicker: the top five industries with the highest hourly pay actually saw a drop in job openings in July 2024.

5. Which industries are thriving in July 2024?

(July 2024 Employment change by selected industry - Source: US Bureau Statistics)

• Manufacturing: 
  In July 2024, the manufacturing sector saw a minor increase of 1,000 jobs, which is essentially the same as the previous month. Compared to a year ago, job numbers have only changed by 0.1%, highlighting a period of stability with very little variation in the sector’s employment levels.
• Automotive:
  In July 2024, automotive manufacturing jobs decreased by 1,300 compared to June. Despite this monthly decline, the overall year-over-year trend remains positive.
• Construction:
  The July 2024 construction industry saw a notable increase of 25,000 jobs, marking one of the highest gains among various sectors. This upward trend has been consistent, with job additions in construction rising significantly from May 2024(+13,000 jobs) through July 2024, and showing substantial growth compared to the same period last year (+11,000 jobs in July 2023). 
• Warehousing & Storage:
  In July 2024, the Warehousing & Storage sector added 10,700 jobs. Over the past year, the sector grew by 25,300 jobs, reflecting steady growth in this industry.
• Healthcare:
  Healthcare added 55,000 jobs in July 2024, leading all other industries in monthly job gains. While there was a slight slowdown in April 2024, the industry has continued to grow rapidly. In fact, July 2024 saw an impressive increase of 720,000 jobs compared to July 2023.

6. Manufacturing Employment - A Deeper Look

The PMI (Purchasing Managers' Index) for July 2024 wasn’t exactly shocking—it’s been below 50% for 11 of the past 12 months. Around this time, the average mortgage rate reached a 23-year high of 7.79% in October 2023 and has since remained more than double what it was three years ago.

So, what did raise eyebrows? That was the steep drop of nearly 25 points from June 2024. 

While the news isn't all doom and gloom, it’s got people talking about a possible recession. The manufacturing sector has been contracting for a while, and that sharp dip in the July PMI has definitely got people on edge.

A PMI below 50% usually signals a contraction in manufacturing, meaning we’re looking at decreased production and, naturally, fewer jobs. 

(Manufacturing PMI from August 2023 to July 2024 - Source: Institue For Supply Management)

Here are the top manufacturing industries that contracted and reported growth in July 2024:

((Manufacturing PMI from August 2023 to July 2024 - Source: Institue For Supply Management)

7. What Experts are saying

• In the last FED meeting, Federal Reserve Chair Jerome Powell said as much said: “A broad set of indicators suggest that conditions in the labor market have returned to about where they stood on the eve of the pandemic: strong, but not overheated.” He also mentioned that "downside risks are real now"
• “This is a labor market that’s otherwise moderated,” Nick Bunker, director of North American economic research at Indeed. 
• Dana Peterson, Chief Economist at The Conference Board, pointed out, "You had a lot of people who reentered the labor market or were new to the labor market," when discussing the reasons behind the rise in the unemployment rate. Indeed, the labor market in July 2024 saw an influx of individuals joining or rejoining the workforce. 
  So, while the increase in the unemployment rate might raise some eyebrows, it’s not necessarily all bad news. Katie Nixon, Chief Investment Officer for Wealth Management at Northern Trust, echoed this sentiment, noting, "The other way the unemployment rate can rise is you just have more people entering the workforce"

After the weak job report for July 2024, it is believed by the Public that a Fed rate cut was a done deal.  However, an emergency cut before the September 2024 meeting is unlikely, as it might just stir the pot. 

Historically, the Fed has only implemented emergency rate cuts between meetings due to severe economic or financial situations.

• Two during COVID-19: The Fed made rate cuts early in the pandemic.
• Two during 2008’s financial crisis: Rate cuts were made during the global financial crisis.
• One after 9/11: A rate cut was made following the September 11 attacks.
• Two during the 2001 tech stock crash: Rate cuts occurred during the crash of technology stocks, when the Nasdaq Composite index fell significantly.

Right now, the market is weaker, but it’s not hitting panic-button levels.

What Lies Ahead for August and the Final Months of the Year?

All things considered, it's obvious that the labor market is cooling down. Before any action on a rate cut by the Fed, it will be difficult to see significant improvement in August compared to what happened in July 2024.

A rise in the unemployment rate always raises flags for a potential recession, but this time, it may be too soon to confirm anything. There are several reasons to believe that a recession is unlikely, despite the increase in unemployment.

Nevertheless, considering and preparing for the possibility of a recession is never a waste.

This situation highlights the importance of having a flexible and resilient workforce for businesses, especially for manufacturers.

For job seekers, following the recent stock market crash, it’s essential to adjust your job hunt strategy and be well-prepared for both opportunities and challenges ahead.