US Strategy Weekly: (Bureau of) Labor Woes

French President Emmanuel Macron named loyalist Sebastien Lecornu, 39, a conservative protege, as prime minister on Tuesday, following the collapse of his fourth government in two years. This appointment shows Macron’s determination to hold on to a minority government and a pro-business reform agenda which cuts taxes on business and the wealthy and raises the retirement age. Lecornu’s appointment is unlikely to appease left-wing “Block Everything” participants who are planning to shut down all of France with protests and blockades on September 10. More importantly, as Macron struggles to hold on to his minority coalition government, the country is slowly slipping toward a fiscal crisis. A combination of weak growth, high borrowing costs, and a massive debt burden has resulted in French bonds yielding 3.4%, a higher cost of capital than Greece or Spain, placing French bond rates second only to Italy.

Meanwhile, the US 10-year Treasury bond yield is currently 4.07%, at the lower end of the 4.0% to 4.7% range that contained yields so far this year. And we wonder if this decline in yields is a response to risks seen in the European debt markets or an indication of weaker US growth. Perhaps it is both.

August payrolls grew by a disappointing 22,000 in August and the unemployment rate rose from 4.2% to 4.3%. Moreover, the U6 unemployment rate rose faster from 7.9% to 8.1%. On a year-on-year basis, the establishment survey showed total employment grew 0.9% YOY, below its long-term average pace of 1.7% YOY. The household survey showed jobs growing 1.2% YOY, below its long-term average rate of 1.5% YOY. However, while both growth rates are currently below average, they are nonetheless positive. A positive growth rate is critical to the economy because a year-over-year decline in jobs is an indication of a recession.

But what dominated news this week was the Bureau of Labor Statistic’s announcement that the annual revision to payrolls in the 12 months ending in March 2025 is estimated to be 911,000, which means payrolls were lower than previously reported. More specifically, this indicates that for every month from March 2024 to March 2025, actual job growth was an average of 76,000 jobs less than reported. This annual adjustment was far larger than economists’ expectations and it appears to be the largest revision ever recorded. And this would be the second unusually large negative annual revision in a row. It also implies that the economy under President Biden was much weaker than reported, it suggests the Federal Reserve should have been lowering interest rates and it supports President Trump’s decision that more rigorous leadership is needed at the Bureau. Last, but far from least, it means that the growth rate in jobs over the last year might already be negative! However, that will not be confirmed until next year.

Revisions to government data are normal as new information is accumulated; but unfortunately, these massive revisions are three times larger than normal and as a result, have destroyed confidence in most government data. This is regrettable. See page 3.

August employment data also revealed a number of underlying trends. Over the last twelve months, foreign employment declined by 822,000 workers while native-born employment increased by 2.8 million workers. This is a massive turnaround from August 2024 when native employment declined by 1.3 million workers and foreign-born workers increased by 1.24 million. See page 4. The unemployment rate rose to 4.3% in August but underlying details show a dichotomy in workforce dynamics. The unemployment rate for those with less than a high school degree is currently 6.7% and rising. The unemployment rate for those with a bachelor’s degree or higher is also rising but remains substantially lower at 2.7%. This suggests that the lower end of the employment market is suffering.

The household survey estimates the number of people who are not in the labor force but currently want a job. This group totaled 6.4 million in August, which was not a big change from July, but it was up 722,000 over the year. This category of “currently want a job” represents 6.3% of those currently not in the labor force, up from 5.7% a year ago. According to the BLS, these individuals are not counted as unemployed because they were not actively looking for work during the four weeks preceding the survey or were unavailable to take a job. However, the 6.4 million people who are not in the labor force and want a job is sizeable when compared to the 7.4 million counted as “actively” unemployed. In short, digging through the data we find a pattern of underemployment. See page 5.

In our view, economists should not be surprised by the pending negative revision in payroll data because there has been a growing disparity between the establishment and household surveys since June 2023. While the payroll survey showed a steady increase in jobs, the household survey – which is much broader – suggested job growth was flat during this period. Note that in the last two years, the only increase in jobs in the household survey took place in January 2025 and this was due to the annual Census adjustment to total population! See page 6.

There are two data points we will be watching in coming months to define the strength or weakness in the job market. First, the 3-month moving average of job growth is currently low at 29,330. Should this moving average turn negative it is a definitive signal of a recession. As we noted, economists should be worried because the revision to jobs data next March is likely to result in this number turning negative. Second, the number of people unemployed for 27 weeks or longer displays how easily the unemployed can find work. This number is currently at 1.93 million people and rising. With the exception of the financial crisis of 2008 and the pandemic, a level of 2.0 million has defined a recession. See page 7.

In the US, GDP is closely linked to personal consumption, which represents 68% of our economy. Moreover, 47% of total GDP is personal consumption of services which means the US economy is dominated by the service sector. In August, the ISM nonmanufacturing index rose 1.9 points to 52, which marked the third straight month above 50 for the index. This is encouraging; however, order backlogs were particularly weak, falling 3.9 points to 40.4, below the 40.9 of May 2023, and at their lowest reading since the 40.0 seen May 2009. Note that the sum of the ISM manufacturing and nonmanufacturing employment indices fell below the standard deviation range of 92 to 113 for the second month in a row. A sharp decline in this series has been linked to recession economies. See page 8. All in all, there are many reasons for the Fed cutting interest rates in September.

From a technical perspective, the market improved this week. The NYSE cumulative advance/decline line hit a new high on September 8, 2025 and new highs should continue if the indices continue to move higher. The 10-day averages of new highs and lows is positive. The 25-day up/down volume oscillator is still neutral but moved higher this week. The lack of an overbought reading of 3.0 or higher since mid-July in this oscillator is a technical warning since volume in advancing stocks should exceed volume in declining issues on new highs in a bull market. We will continue to monitor this. September tends to be a dangerous time for equity investors, and this September includes unrest in France, Israel attacking Hamas in Qatar, Russia seeking alliances with China and North Korea, and the possibility of a US government shutdown. However, a rate cut is likely and that, along with relatively good earnings, is a positive for equities. We would be a buyer on weakness.

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