Does One Bad Jobs Report Mean Recession?

Host: The monthly jobs report for July is out, showing hiring slumped by losing 23,000 jobs. Here to talk about this further is economist Dan Varroney, president and CEO of Potomac Core. Thank you for joining us.

Dan Varroney: Pleasure to be with you today, Stephanie.

Host: The latest data showed not only employers shed 23,000 jobs, but gains in previous months were revised down sharply. What’s your reaction?

Dan Varroney: My reaction is that the economy is not sputtering or heading into a recession. We had one bad jobs report, and we should see it as one bad jobs report. The overall economy, in terms of private investment, retail sales, and strength of the consumer, actually is very good. We’ve also seen small-business jobs, according to ADP, from January through last month grow by around 350,000 new jobs. So this is one bad report. We shouldn’t overreact to it. A lot of the essential pieces are in place, and I think we need to focus on where we go next.

Host: The Federal Reserve decided to hold interest rates steady at its latest meeting. The Federal Open Market Committee’s next meeting is in September. How much bearing will today’s report have?

Dan Varroney: There was a lot of concern and talk in the market and on the business channels that they expected the Federal Reserve, based on what they were seeing in terms of inflation, would raise rates. I think today’s report has lowered the chances of the Federal Open Market Committee raising rates come September. That’s one part of it, but there’s another part too: we’re in the middle of an energy-price shock. Sixty percent of the price increases that we’re dealing with today are a result of the energy-price shock. So when the energy-price shock goes away, those prices will come down. I think Fed Chair Kevin Warsh has that top of mind. Today’s data will be top of mind, but there’ll be another jobs report before the Fed meets next. The inflation numbers come out next week, and we’ll have a better sense of what they’ll do. My hope is that they will hold the line on interest rates and not raise them any further. I believe the current rates are restrictive enough.

Host: You pointed out that the inflation numbers will be out next week. What do you expect from those numbers?

Dan Varroney: I expect the headline inflation numbers to be down further. I expect core inflation to be down further. Next week the wholesale price numbers are going to be released, and I expect those numbers to be down further. I’m expecting better news. I don’t think the inflation numbers will come in at 2%. I think they’ll be over 2%, but I think we’ll see an improvement month over month and year over year.

Host: How is this all impacting investing and hiring decisions moving forward?

Dan Varroney: When you look at the jobs numbers and hiring decisions, we are in a period of uncertainty that really is a result of the conflict with Iran. I think when the conflict ends, the uncertainty ends. But there are things that we can do policy-wise to put a damper on that uncertainty. I think there needs to be serious permitting reform because permitting reform will help us build more refineries and generate more oil domestically. What’s more, it’ll help our small businesses create and produce more jobs. As it is, small businesses create two out of three new jobs. Permitting reform is absolutely essential, and I hope that Congress and the administration focus on that as soon as possible.