The July jobs report came out this morning, and it definitely did not fill the Biden-Harris administration with warm fuzzies. The state of the economy has been a looming issue over this election season, and if indicators go south, that is not good news for the Democrats.

More than discussions of “weirdness,” pointing out bad accents, or even race-segregated campaign messaging, people will vote over the state of two things – their personal safety, and their bank accounts. The state of the southern border is a huge issue because it applies to the first. The possibility of recession, now highlighted by this jobs report, addresses the latter.

Job growth slowed sharply in July and the unemployment rate rose to its highest level since 2021, the Labor Department reported. The data adds to evidence that a labor market whose strength was already fading could actually be on its way to weakness.

Hiring slowed to 114,000 jobs last month, the government said, missing expectations. The unemployment rate rose to 4.3%—its highest level in nearly three years, when the economy was still clawing its way back from the pandemic.

Stocks fell sharply after the data came out, reflecting investors’ renewed worries about an economic slowdown. Everything from banking stocks to small companies took big hits, Treasury yields mostly fell below 4% and the CBOE Volatility Index, Wall Street’s “fear gauge,” was on track for its highest close of the year.

JUST IN: A really weak July jobs report. The US economy added only 114,000 jobs in July (well below forecasts)

Unemployment rate hits 4.3% —> Highest since October 2021 and this triggers the Sahm Rule recession indicator.

Wage growth: 3.6% (vs. 3% inflation) pic.twitter.com/dWeAIPMHiW

— Heather Long (@byHeatherLong) August 2, 2024

What exactly is the “Sahm Rule recession indicator,” though?

So, first, the data: with the unemployment rate reaching 4.3% in July, the three-month moving average of the unemployment rate is at least 0.5 percentage points above the minimum of the three-month averages from the previous 12 months. The Sahm rule states that reaching the 0.5% level means there’s a recession.

Unpacking that, what the rule is basically saying is when the jobless rate is rising pretty quickly, the economy is slumping. The three-month average is important because it smooths out times where there’s a quirk that only impacts the unemployment rate for a month.

The rule, named after former Fed economist Claudia Sahm, is closely tracked because it’s worked in the past.

Are we in a recession? Sahm says no.

Sahm herself told the Wall Street Journal that she actually doesn’t think the economy is in recession. Changes in the labor supply after the pandemic and the recent jump in immigration has diminished its usefulness, she says.

That said, she is worried about the direction of the U.S. economy, and Sahm had said ahead of Wednesday’s Fed decision that the central bank should cut interest rates.

But it isn’t just the July jobs report that is the problem. The May and June jobs numbers just got a “revision.” And they didn’t go up.

The Labor Department said average hourly earnings were up 3.6% in July from a year earlier—above the recent pace of inflation, but the smallest gain since May 2021. The jobs count for May and June was revised down by a combined 29,000.

The jump in the unemployment rate was from more people looking for jobs, rather than people losing their jobs. The labor-force participation rate, the share of working-age people who were employed or seeking work, rose to 62.7% from 62.6% in June. Absent the increase in participation, the unemployment rate would have stayed at 4.1%.

July’s job gains were concentrated in the healthcare sector, which added 55,000 jobs, construction, which added 25,000, and leisure and hospitality, which added 23,000. On the other side of the ledger, the information sector shed 20,000 jobs.

You will NEVER guess which way the Kamala department of goalseeked numbers revised prior job prints:

May revised down by 2,000
June revised down by 27,000

And 5 of the past 6 months revised lower pic.twitter.com/nLh7fk6lhY

— zerohedge (@zerohedge) August 2, 2024

What happens now? Well, Democrats were counting on Fed Chairman Jerome Powell cutting the interest rate in September, just in time for the election. Now, that may still happen. The Democrats are begging for it, as you can see from Senator Elizabeth Warren’s post.

Democrats begging the Fed to rescue them. https://t.co/EX8Vh7hmvH

— Phil Kerpen (@kerpen) August 2, 2024

A rate cut is not going to instantly solve the economic weakness, because the rates were raised to check the massive inflation rates, and the Democrats do know that. What they are hoping for is simply to get past Election Day in November without triggering a recession. Never has James Carville’s election slogan, “It’s the economy, stupid” ever felt more apropos – and absolutely could be used as a club to wield against Kamala Harris.

If I were a GOP campaign I would spend the rest of today and this weekend just hammering the disaster jobs report https://t.co/vOiNTpPVDR

— Sunny (@sunnyright) August 2, 2024

If the rates are cut too much in a weak economy, inflation could rise again. And given the trend of quietly “revising” job numbers months after they are initially released, July’s jobs report could end up being even WORSE. Wow, does that inspire confidence in the economy or what!

Obviously, the markets panicked and the numbers tumbled. Will they eventually even back out? Yes, because the stock market is reactionary. But it’s clear that the expectation is that the Fed should cut rates immediately, by as much as half a point, and Powell wasn’t on board with that even when the jobs report looked stable.

Now, worries are rising the Fed may have kept its main interest rate at a two-decade high for too long. A rate cut would make it easier for U.S. households and companies to borrow money and boost the economy, but it could take months to a year for the full effects to filter through.

“The Fed is seizing defeat from the jaws of victory,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Economic momentum has slowed so much that a rate cut in September will be too little and too late. They’ll have to do something bigger than” the traditional cut of a quarter of a percentage point ”to avert a recession.”

Traders are now betting on a better than three-in-four chance that the Fed will cut its main interest rate by half a percentage point in September, according to data from CME Group. That’s even though Powell said Wednesday that such a deep reduction is “not something we’re thinking about right now.”

The high interest rates are definitely having an impact on people, especially when it comes to loans and the housing market. But what has an even more immediate impact on people? Inflation. Unemployment. If the uncertainty in the economy continues, that becomes Kamala Harris’s problem.

“Kamala Harris has proudly and repeatedly celebrated her role as Joe Biden’s co-pilot on ‘Bidenomics,'” Trump campaign national press secretary Karoline Leavitt said Friday. “She cast tie-breaking votes in the Senate for spending that put inflation on steroids, and despite the evidence that America’s working families are hurting, she tells us these failed plans are working.”

Leavitt added: “The basic necessities of food, gas and housing are less affordable, unemployment is rising, and Kamala doesn’t seem to care.”

If the Trump campaign, and Trump and Vance themselves, can pivot and practice message discipline to focus on the state of the economy after this jobs report, then they can potentially shift the momentum in the race and put Harris on the defensive before she can name a vice presidential pick. The Harris campaign has already tried to blame – wait for it – Donald Trump for the jobs report. That attack will not work, not when Trump has been out of office for well over three years and “Bidenomics” was the humblebrag point of the Biden-Harris administration. If The Trump-Vance campaign cannot pull themselves together, and present a coherent and disciplined message about how “it’s STILL the economy, stupid,” then they will not win this election.

Featured image: original Victory Girls art by Darleen Click