GM. This is Milk Road Macro, the newsletter that watches the labor market like your uncle watches Fox News, intensely and with strong opinions.
Here’s what we got for you today:
- ✍️ What’s going on with the US labor market?
- 🎙️ The Milk Road Macro Show: Surviving the Liquidity Crisis: Everything You Need to Navigate This Cycle w/ Michael Howell
- 🍪 Trump suggested Americans could get tariff dividends
Prices as of 8:00 AM ET.
WHAT’S GOING ON WITH THE U.S. LABOR MARKET?
New US jobs data was released last week - and it was, errr, pretty bad.
Stocks and bitcoin tumbled on the news.
Traders bet that the Fed will start cutting rates soon.
And the President is threatening to fire somebody (not Powell this time).
So what actually happened with the job numbers last week?
How did asset markets respond?
And is it all really as bad as it looks at first glance?
Let’s take a look…
So what happened last week?
New labor data released on Friday (August 1) showed a shock dip in numbers.
US payrolls (jobs created) increased by 73,000 in July, lower than the 110,000 expected.
But more importantly, the numbers for May and June were revised down by nearly 260,000.
This leaves the average monthly employment growth over the past three months at a surprisingly low 35,000, the lowest level since the 2020 pandemic.
The data sends a strong signal that the US labor market could be weakening more notably than previously thought.
This could pose a risk to a slowdown in consumer spending and overall growth.
“The cracks in the labor market have widened substantially”, Nationwide Chief Economist Kathy Bostjancic said in a note to clients.
Chris Turner from ING added: “Powell could resist pressure to cut rates because the labor market was solid. Payrolls data has rather pulled the rug from under him”.
Looking into the data further, it looks even worse.
Without health care - the main engine of US job growth over the past few years - the last three months would all be negative (-53,000, -45,000, -300).
Stephen Miran, chair of the White House Council of Economic Advisers, said the weak jobs report was due in part to uncertainty on trade.
Overall, Friday was a big day for the “recession is coming (trust me bro)” doomers.
So, what happened to markets?
After the weak jobs numbers were released, risk asset markets took a hit.
The S&P 500 fell 2% in a few hours (it’s since recovered the losses).
Bitcoin once again proved it is not a risk-off asset.
It’s not living up to its moniker of “digital gold” in risk-off moments, as it fell 3% alongside stocks.
Meanwhile, actual gold bounced higher.
Short-term US Treasury yields plunged, as traders immediately bet the Federal Reserve would take more aggressive action on rate cuts.
(Short-term Treasury yields are closely linked to overall interest rates in the economy.)
2-year Treasury yields saw the biggest fall in almost a year.
Market pricing for a 25bps September Fed rate cut surged higher - now sitting at 88%, after falling to less than 40% on Friday morning.
Remember, just two days before the jobs data was released, Fed Chair Jerome Powell described the US labor market as “solid” as the Fed kept rates unchanged.
But are things as bad as they seem?
Let’s dig deeper into the employment data.
While payroll numbers have been creeping lower for a few months now, the overall unemployment rate has remained at more-or-less the same level for 12 months (a very low level, relative to historical standards).
This situation is probably largely due to the fact that immigration to the US has basically fallen off a cliff since Trump took office.
Because immigration has slowed so drastically, the Labor Force Participation Rate has dropped.
If the Labor Force Participation Rate had been held constant since April, the unemployment rate would actually be closer to 4.9%, according to Parker Ross of Arch Capital Group.
Guy Berger, Senior Fellow at the Burning Glass Institute, noted:
“The most ‘recessiony’ category of unemployment, ‘due to permanent layoff’, was unchanged.”
And he added:
“The share of prime-working age Americans with a job fell to 80.4%. This is well within the range since last fall. Not obvious we're falling outside of the stability band of the last 9-12 months.”
Meanwhile, Initial Jobless Claims (the number of people that have filed for unemployment benefits for the first time) still remains in the same range it has been in for more than three years (a very low level, based on historical standards).
There’s also an unusual dynamic at the moment with tech companies and AI.
Many big tech firms are increasing revenues with AI, but their workforce is actually shrinking.
This is basically unprecedented in history - you would historically expect companies to be hiring more people as revenues increase.
Setting employment numbers aside, other measures of the US economy still look relatively strong.
Augur Infinity’s real-time estimate of US growth is still generally bouncing higher, after it plummeted earlier this year.
And the Citi Economic Surprise Index (measuring whether a wide range of US economic data is coming in above or below expectations) also made a new multi-month high last week.
Traders on Polymarket still appear to be pretty sure a recession is not on the horizon.
The “US recession in 2025” market barely budged following the Friday jobs numbers, currently sitting at a 15% probability, down from more than 60% in parts of April and May.
And the President is not happy…
Hours after the jobs data was released on Friday, President Trump had a lot to say.
On Truth Social, he wrote: “Today’s Jobs numbers were RIGGED in order to make the Republicans, and ME, look bad.”
He also took aim at Dr. Erica McEntarfer, the commissioner of the BLS, which is tasked with curating employment data in the US.
Trump said he had directed his team “to fire this Biden Political Appointee, IMMEDIATELY”.
He also accused McEntarfer of “faking jobs numbers before the election”.
Wrapping up
There’s no doubt that this particular jobs report was ugly.
But the dynamics around the US labor market are changing rapidly - with two big factors being lower immigration and the ongoing effects of AI.
Looking deeper into the data, things may not look as bad as they first appear.
In my opinion, it’s still highly unlikely that a recession will occur anytime soon - particularly with the US Government fiscal deficit running at 6-7% of GDP (extreme levels of Government spending).
But these latest job numbers do pile more pressure onto the Federal Reserve to cut rates.
While the next official Fed rate decision is not until September 17, I mentioned last week that Jackson Hole in late August could be a big event - and it now looks even more interesting.
If data between now and then continues to point towards a rate cut, Fed Chair Jerome Powell could use Jackson Hole to signal a policy pivot towards restarting rate cuts in September.
That’s it for this edition - catch you for the next one.
“THE BOND MARKET BREAKS = EVERYTHING BREAKS” 🧨
On today’s episode of The Milk Road Macro Show, we sat down with Michael Howell, one of the sharpest minds in macro, to unpack the real driver of markets right now: global liquidity.
Here’s a quick TL;DR from the episode:
- Global liquidity is rising, but we’re near the peak of the cycle
- The U.S. Treasury is quietly running “QE by stealth”
- China is injecting record liquidity, fueling gold and commodities
- Bond market breaks = system breaks. It’s that serious.
If you want to understand the macro game before it breaks the markets, this episode is a must-watch.
Click below to check it out 👇
YouTube | Spotify | Apple Podcasts
BITE-SIZED COOKIES FOR THE ROAD 🍪
Trump suggested Americans with certain income levels could receive dividends from tariff revenues. He said: “I would say for people that would be middle-income people and lower-income people, we could do a dividend.”
Palantir stock rose more than 4% in premarket trading on Tuesday after the defence tech giant reported revenue topping $1 billion for the first time. "The growth rate of our business has accelerated radically", Palantir CEO Alex Karp said.
An Ethereum Treasury firm backed by famous Wall Street analyst Tom Lee has become the world’s largest public holder of ETH. Bitmine Immersion Technologies said its holdings have climbed to about 833,000 tokens ($2.9 billion).
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