Employment Trends Index Points to Gloomier Times Ahead for Already-Stretched Households

On a day when a stock market rout promised to become a full-fledged bloodbath, and as recession fears mounted, the latest spate of economic data on employment is proving to be grist for a gloomy mill.

Simply put, as employment data continues to come in cold (where once it was red-hot), already-stretched households may be sweating things a bit more and could conceivably look to tighten their belts further.

As reported by the Conference Board on Monday (Aug. 5), the Employment Trends Index decreased in July to 109.61, from an upwardly revised 110.58 in June. Generally speaking, positive momentum indicates employment will increase; the converse is true when the Index dips.

And the dip has been in place for two consecutive months. Commentary from Mitchell Barnes, economist at The Conference Board, noted that “July’s decline in the ETI is consistent with the normalization that is occurring across labor market metrics, including the ongoing moderation of payroll gains.”

But things are not necessarily dire — the report observed that though the unemployment rate grew last month to 4.3% in July from 4.1%, the joblessness rate remains low (at least historically speaking).

Moderating Gains — and a Vicious Cycle of Worry?

The mention of moderating payroll gains comes as PYMNTS Intelligence data has found that despite the fact that wages have been growing, normalization or not, 85% of consumers do not feel the growth has matched inflation. At this writing, a stock selloff is only gaining momentum — with equities swooning more than 2% in intraday trading. Depending on what you read in the financial press, traders are betting on a half-point cut to the Fed Funds rate (now at roughly 5.3%) as soon as next month at the central bank’s next meeting — and an attendant decline in overall interest rates.

Interest rates are still within sight of two-decade highs, and the goal had been at least to cool down an inexorable rise in wages, corporate “input” pressures, and, in turn, a boost in prices paid at the register. Now the worry is that the Fed waited too long to cut, jobs and wages are slowing, and we’re tipping toward recession.

And maybe a vicious cycle, where fears of a recession and a tougher labor picture beget a pullback in spending, particularly among the 62% of us who live paycheck to paycheck, which turns recession into a deepening reality … which impacts spending (and payments) and corporate coffers, so that companies pull back and … well, you get the picture.

Other economic data this week — particularly consumer credit data, per the Fed, and information on overall household debt — will give some additional insight into just how leveraged households are. Our own research from earlier this year found that paying down debt is taking some “mind share” among various cohorts, particularly younger generations, such as Generation Z, that have thus far proven resilient in rocky economic climes. Paying down debt in the face of recessionary fears means that there’s less money left over to keep spending, and a decimated “wealth effect” as stock markets remain anything but calm (and 401k funds feel pain) may only further stoke a gloomy mindset as we head into the fall and holiday shopping season.