Update 801: Job Gains Slow to 114K

September 24, 2024 | Child Tax Credit, Jobs, Update, Weekly Round Up | By

Update 801 – Job Gains Slow to 114K
As Congress Heads for August Recess

This morning’s weaker-than-expected jobs report showing just a net 114,000 positions added in July suggests that the Fed’s decision earlier this week to hold interest rates steady instead of initiating cuts may have been too hawk-ish. With the labor market still strong, but showing signs of weakening, a September cut now appears more certain. 

In other news, the Senate had a fiscal-heavy legislative week before breaking for August recess, passing four of the five remaining appropriations bills out of committee. The chamber also held a long-awaited procedural vote on the Wyden-Smith tax package that pairs a CTC expansion with business-friendly tax provision, a vote that failed to meet the 60 member threshold as Republicans blocked the legislation. We explore the aforementioned developments, as well as relevant Senate hearings on economic policy from this week, below. 

Good weekends all,

Dana

Headline

Job Growth Slows, Unemployment Up in July

The U.S. economy added a net 114,000 jobs in July, far less than the expected addition of 175,000 jobs, while the unemployment rate ticked up to 4.3 percent, surpassing expectations that unemployment would hold steady at 4.1 percent. The new data, included in the July jobs report released by the Bureau of Labor Statistics (BLS) this morning, shows that the labor market remains relatively strong but is notably cooling. The report comes two days after the Federal Reserve opted to hold interest rates steady at their elevated level of about 5.3 percent rather than initiate cuts, despite growing calls to cut rates sooner rather than later. Today’s report should be a clear signal to the Fed’s rate-setting committee that it has indeed held rates too high for too long, and that its next meeting in September should focus on how much rather than whether to cut the federal funds rate.

Job growth in June was revised down by 27,000 jobs, from 206,000 to 179,000 jobs, while job growth in May was revised down by 2,000 jobs, from 218,000 to 216,000 jobs. This brings the average monthly jobs gain over the past three months to a still-strong but notably moderating 170,000 jobs.

Source: Council of Economic Advisers

Last month, job gains increased for the forty-third consecutive month, and by the second smallest gain over that period. The largest gains came in:

  • health care (55,000 jobs)
  • construction (25,000 jobs)
  • transportation and warehousing (14,000 jobs)

The unemployment rate ticked up by 0.2 percent from 4.1 percent in June to 4.3 percent in July. This is the highest level of unemployment seen since October 2021. 

In July, wages rose by 0.2 percent on a monthly basis and by 3.6 percent over the past twelve months, rising by less than June’s 0.3 percent month-on-month increase and 3.9 percent annualized increase.

With monthly job growth moderating, the unemployment rate rising, and wage growth slowing, today’s report shows that the U.S. labor market – which has been remarkably resilient in the face of the Fed’s rate cycle hikes – is weakening. Signs of cooling that were underlying in recent job reports have now risen from below the surface. 

If the Fed’s interest-rate-setting committee, the Federal Open Market Committee, is indeed taking a data-dependent approach in deciding its coming interest rate decisions – as Fed Chair Jerome Powell said in his press conference on Wednesday – then the unexpected extent of labor market cooling revealed in today’s report should solidify Powell’s hints of a rate cut in September. Senator Elizabeth Warren (D-MA) said following the release of the report on Friday, “Fed Chair Powell made a serious mistake not cutting interest rates,” adding, “Powell needs to cancel his summer vacation and cut rates now — not wait 6 weeks.” The question for the committee should be whether to cut interest rates by 25 or 50 basis points. 

Productivity Up Sharply in 2nd Quarter

Yesterday, BLS reported that U.S productivity shot up by 2.3 percent in the second quarter this year, far outpacing the 0.4 percent reported in the first quarter. The second quarter figure exceeded market expectations of a 1.8 percent gain. The increase in productivity, a measure of output of goods and services per hour of work, may reflect “wider usage of AI [artificial intelligence] concepts,” said Ben Ayers, senior economist at Nationwide.

The rise in productivity from April to June comes as wage growth is slowing and competition for workers is easing. Employer labor costs cooled to a 4.1 percent rate in the second quarter, the slowest place recorded since 2021, according to the Employment Cost Index data released Wednesday. The outsize gains in productivity may also apply downward pressure on prices as businesses may not feel as much pressure to set higher prices to push profits.

Other developments

Tax Package Fails in the Senate

In its last act before adjourning for August recess on Thursday, the Senate failed to clear a procedural hurdle invoking cloture, meaning it would have needed 60 votes to pass, on the Tax Relief for American Families and Workers Act (HR 7024) in a 48-44 vote. This tax package, which pairs Democratic-led expansions of the Child Tax Credit (CTC) with Republican-friendly business tax cuts, passed the House with broad bipartisan support in January in a 357-70 vote.

After months of resistance by Senate Finance Ranking Member Mike Crapo (R-ID), three Republicans, Senators Hawley (R-MO), Mullin (R-OK) and Scott (R-SC) joined the 45 Democrats who voted in support of the bipartisan tax package. Ranking Member Crapo never engaged in good faith negotiations on the package, at least partially due to his expectation of becoming Finance Chair in the next Congress (making him the leading Hill actor on tax policy), which would give him the opportunity to put his mark on the bill. 

After announcing a vote late last week, Senate Majority Leader Chuck Schumer originally voted in favor of the bill but switched his vote to ensure the package can be brought to the floor later this Congress. But with the presidential election nearing, it is hard to imagine the package getting such a chance this year.

The $79 billion package balances a $33 billion expansion of the Child Tax Credit with three business provisions that lower corporate tax liabilities worth roughly the same amount.

The changes to the CTC include:

  • calculating the credit on a per-child basis,
  • setting a maximum refundable amount per child of $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025, 
  • adjusting the credit to better account for inflation, and
  • implementing a lookback to allow taxpayers to choose between the two previous tax years to calculate the value of their credit. 

The business tax provisions included in the tax package include: 

  • an extension of 100 percent bonus depreciation,
  • the reinstatement of R&E expensing, and
  • delaying tighter interest deductibility limits. 

Aside from the CTC and business provisions, an additional $13 billion would extend the Low Income Housing Tax Credit (LIHTC), provide tax relief for disaster victims, and create a special carve-out agreement with Taiwan. This package would be largely offset by disallowing new claims of the fraud-ridden COVID-era Employee Retention Tax Credit (ERTC) and expanding the IRS’ enforcement authority to review past fraudulent claims. 

Expanding the Child Tax Credit would lift 400,000 children out of poverty and give 16 million children access to the full credit. Such a far-reaching poverty-reducing program deserves bipartisan support, as it received in the House. 20/20 Vision urges the Senate to end their political gamesmanship and ultimately deliver for American families. 

Senate Appropriators OK 11 Spending Bills By Recess

Before heading out for August recess this week, the Senate came close to its goal of passing all 12 spending measures out of committee. Senate appropriators approved four of the five remaining funding bills for FY25 in a markup this Thursday: 

The last FY25 bill still to be cleared by the Senate Appropriations Committee, Homeland Security, was originally slated for consideration in Thursday’s markup but was pulled to allow more time for bipartisan negotiations. Specifically, concerns about funding for the Secret Service following the assassination attempt on Former President Trump and efforts to protect members facing competitive reelection contests from tough votes on immigration were especially problematic. At the conclusion of the markup, Appropriations Chair Patty Murray (D-WA) noted her Committee will continue to work to resolve differences on Homeland Security funding, and hope to go through the markup process for the bill when members return from the August recess. 

As the Senate does not plan to hold floor votes for any of the FY25 proposals before the likely passage of a CR in September, the committee-passed proposals will act as a starting point in negotiations with the House. While the House GOP majority hoped that passing more bills out of the full chamber would give them a leg up during negotiations, their ability to only pass 5 bills despite promising 12, coupled with the bipartisan nature of the Senate proposals, suggests that the Senate bills can be used as a blueprint for what’s to come when final funding is considered later this year.

Hearings

SBC Subcommittee Highlights Pros of Banning Noncompetes

On Tuesday, the Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy convened a hearing focused on the benefits of banning noncompete clauses in employment contracts for workers, businesses and the broader economy, in the first hearing held by a Congressional panel entirely dedicated to highlighting the benefits of a Federal Trade Commission (FTC) rule to ban the clauses. 

In April, the FTC issued a final rule to ban noncompetes – clauses in employment contracts that prevent workers from working for or starting their own “competitor” companies during or after their current employment – nationwide. An estimated 18 percent of American workers – 30 million people – are covered by noncompetes. As the FTC noted, “Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation.” The FTC estimates that the rule will increase earnings for the average worker by $524 or more and lead to more than 8,500 new startups per year. 

As Subcommittee Chair Elizabeth Warren (D-MA) noted, Republicans “are moving nearly in lock-step with the big corporations that hate these rules.” Last month, Representative Gary Palmer (R-AL) introduced a Congressional Review Act resolution seeking to block the rule. And in yet another case of judge shopping by the Chamber of Commerce and its allied trade groups, a Trump-appointed judge in the Northern District of Texas recently issued a preliminary injunction on parts of the rule and is expected to issue a final ruling on August 30.

Ranking Member John Kennedy (R-LA) acknowledged that noncompetes can be abused, saying “…I don’t think a fast food restaurateur should ask entry-level restaurant employees to sign a noncompete agreement. Then what’s the point, other than to restrict free enterprise?” 

The rule could be blocked by the August 30 ruling but is otherwise set to go into effect on September 4.

Senate Banking on Federal Infrastructure Investment

On Wednesday, the Senate Banking Committee met for a hearing on investment in federal infrastructure and public transportation. Chairman Sherrod Brown (D-OH) decried the decades of decay suffered by America’s infrastructure, which he blamed on disinvestment compounded by misguided tax and trade policies, along with empty promises from politicians from both parties. That said, Senator Brown praised the actions taken by the Biden Administration, whose infrastructure bills represent the largest investment in America’s infrastructure since 1956 and have created 60,000 current infrastructure projects, many of which impact American citizens on a regular basis. 

Ranking Member Tim Scott (R-SC) did not share his enthusiasm, criticizing Washington for failing to incorporate the perspective of localities in its decision-making. He pointed to the fact that it takes seven years on average from the announcement of a highway project to finally turn the shovel and begin construction, which Senator Scott blamed on red tape in general and environmental regulations in particular. In short, the Democrats praised the Biden Administration’s record on infrastructure while Republicans sought to undercut it.

The witnesses included:

  • Christopher Coes, Acting Under Secretary of Transportation for Policy. Coes praised the Biden Administration’s actions on infrastructure, with the administration announcing $461 billion in awards for infrastructure projects in all 50 states, the District of Columbia, and US territories. This number includes $91 billion in restoring and expanding America’s transit system.
  • Michael Knisley of the Ohio State Building and Construction Trades Council was optimistic about the future of infrastructure projects in Ohio, stating that $200 billion in construction projects in the state were expected over the next decade thanks to federal infrastructure investment. Knisley emphasized that these projects were creating good, well-paying, unionized jobs for Ohio’s tradespeople.
  • Dr. R. Richard Geddes of Cornell was more skeptical, stating that the Biden Administration’s investment in infrastructure was being hampered by inflation and overregulation. Dr. Geddes encouraged Congress to support public-private partnerships for infrastructure projects in a similar manner to other developed countries.

Senate Finance on Tax Tools for Local Econ. Development

On Tuesday, the Senate Finance Committee held a hearing on tax tools – policy options such as tax credits or incentives in this context – that can spur local economic development. Specifically, the hearing focused on:

  • The New Markets Tax Credit 
  • Tax-exempt municipal bonds 
  • Opportunity Zones
  • Historic Tax Credit

Led by Chairman Ron Wyden (D-OR), the Democrats praised the role that tax incentives play in bringing federal dollars into crucial local projects such as infrastructure, utilities, and other sectors to improve communities and boost economic growth. Democrats stressed the need to continue these programs, with the New Market Tax Credit set to expire in 2025 and tax-exempt municipal bonds having previously been targeted by Republicans for cuts – an effort they may very well continue in next year’s tax Superbowl deliberations forced by the expiration of the individual provisions of the 2017 Trump tax cuts. 

The Democrats had a much more mixed opinion of the Opportunity Zones program – which provides investors with preferential tax treatment on investment gains made in ‘’economically distressed areas’ – initially launched by Trump’s Tax Cuts and Jobs Act (TCJA). They stated that, while the Opportunity Zones have had some successes, the eligibility rules were loose and safeguards are lax. This has allowed wealthy people to take advantage of the program and use it to defer taxes on projects that do not directly benefit residents of Opportunity Zones such as casinos and crypto mining facilities.

The fight over Opportunity Zones and other tax tools for local economic development will surely continue into next year when Congress will consider expirations of individual TCJA provisions likely alongside additional tax policy. While the provision for Opportunity Zones will expire at the end of 2026, Congress should take the chance next year to find ways to improve on this provision to ensure that it can most effectively encourage economic growth in struggling communities.

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