Analysis of current economic conditions and policy
Lewis-Mertens-Stock WEI Decelerates
Based on weekly releases, through 8/1.
7 thoughts on “Lewis-Mertens-Stock WEI Decelerates”
James
July 2026 U.S. Employment Situation – The labor market is losing participants faster than it is losing jobs. BLS says the LFPR has fallen 0.7 percentage point since January (discounting Covid related drop – lowest since April 1976), while the employment-population ratio has fallen 0.5 point. BLS also reports that 5.9 million people are outside the labor force but not counted as unemployed. And the revisions are significant: May went from +129,000 to +63,000 and June from +57,000 to +20,000. So May and June together were 103,000 weaker than previously reported. The Trump policies are taking a toll on the U.S. economy. Look for slower GDP and increased cost push inflation for food/services/housing – loss of ag/food processing workers, loss of frontline caregivers, and loss of construction workers. Aging Baby Boomers continue to exit the workforce in significant numbers. Average hourly earnings increased only 0.1% month-to-month and 3.2% YoY. BLS reports average hourly earnings at $37.62, up just two cents in July. Labor supply is weakening while wage growth is slowing.
Macroduck
Employment down, private employment up, government down. Jobless rate down. Participation rate down. Employment-to-population down. Average hourly earnings rounds up to +0.1%, lagging inflation. Weekly payroll index +0.1%, weekly hours index flat.
Stock happy because the labor market isn’t.
Stephen Miller special: Native-born employment down 0.5% y/y. Foreign-born down 0.9% y/y. So much winning!
Macroduck
By the way, the 57,000 drop in local government employment suggests seasonal teacher and school staff cuts were the source of the government job decline, and that seasonal adjustment may exaggerate the loss.
Meanwhile, downward revisions to prior months’ job gain reveal a weaker labor market than had been thought.
Baffling
Education cuts in k-12 have already been occurring due to demographics. Colleges are next, with some dire predictions to enrollment based on demographics. Fewer children in school, and even less moving on to college. It has enrollment management types terrified at many colleges. This will continue to put downward pressure on employment, as colleges lay off or reduce hiring in response. Too bad international students are being turned away, that could have helped the situation.
Macroduck
I’m a day late with this. Labor compensation as a share of national income fell to a new historic low in Q2:
Notice how the trajectory has been downward since around 1970, but that the 2000-2010 period and the Covid-era period since 2020 have been particularly bad for labor. It’s interesting, I think, that in the 2000-2010 period, the Shiller P/E ratio suffered right along with labor compensation, but in the Covid era, the Shiller P/E has hit extraordinary highs while labor’s share of national income has fallen to an historic low and is still falling fast:
Looks like a pretty good match, with sentiment improving whenever labor’s share stabilizes – we’re a happy lot, so no need for actual gains – and sentiment deteriorating when labor’s share declines.
There’s plenty of room for other factors around the edges – inflation and changes to survey methods matter – but the link between consumer moods and share of income looks like the big factor, and it’s often left out of the discussion. Some people feel left behind by a changing economy? Some age groups feel like they’ve been buried in debt and can never thrive? Some feel that the economy is rigged? Some think trade and immigration have hurt them? Every one of these stories fits with the decline in labor’s share.
Mamdani, AOC, el Sayed, Bernie, Warren, Porter – they’ve all made this issue part of their schtick. They’ve all faced attacks from the center, including from other Democrats. Seems pretty obvious; class warfare is a real thing, it’s never-ending, and regular working folk are losing.
pgl
Labor compensation as a share of national income had been 56% before the Great Recession but fell to around 53% for years not including that COVID bump. It’s now before 50% which is alarming.
Ivan
Off Topic.
ISW has a remarkable report on a transcript of a supposed call between Putin and a supposed commander in Ukraine.
“The voice purporting to be the division commander identifies himself in the audio recording as Colonel Shikhabidov, who is reported by multiple Russian sources to have died in May 2025.[2] Russian sources report that the current commander of the division is Denis Shishov.[3] Putin does not name the commander during the conversation. The error calls into question the authenticity of the exchange”
The people trying to make up a rosy reality at the front are so disconnected from that reality that they have a dead man talking.
July 2026 U.S. Employment Situation – The labor market is losing participants faster than it is losing jobs. BLS says the LFPR has fallen 0.7 percentage point since January (discounting Covid related drop – lowest since April 1976), while the employment-population ratio has fallen 0.5 point. BLS also reports that 5.9 million people are outside the labor force but not counted as unemployed. And the revisions are significant: May went from +129,000 to +63,000 and June from +57,000 to +20,000. So May and June together were 103,000 weaker than previously reported. The Trump policies are taking a toll on the U.S. economy. Look for slower GDP and increased cost push inflation for food/services/housing – loss of ag/food processing workers, loss of frontline caregivers, and loss of construction workers. Aging Baby Boomers continue to exit the workforce in significant numbers. Average hourly earnings increased only 0.1% month-to-month and 3.2% YoY. BLS reports average hourly earnings at $37.62, up just two cents in July. Labor supply is weakening while wage growth is slowing.
Employment down, private employment up, government down. Jobless rate down. Participation rate down. Employment-to-population down. Average hourly earnings rounds up to +0.1%, lagging inflation. Weekly payroll index +0.1%, weekly hours index flat.
Stock happy because the labor market isn’t.
Stephen Miller special: Native-born employment down 0.5% y/y. Foreign-born down 0.9% y/y. So much winning!
By the way, the 57,000 drop in local government employment suggests seasonal teacher and school staff cuts were the source of the government job decline, and that seasonal adjustment may exaggerate the loss.
Meanwhile, downward revisions to prior months’ job gain reveal a weaker labor market than had been thought.
Education cuts in k-12 have already been occurring due to demographics. Colleges are next, with some dire predictions to enrollment based on demographics. Fewer children in school, and even less moving on to college. It has enrollment management types terrified at many colleges. This will continue to put downward pressure on employment, as colleges lay off or reduce hiring in response. Too bad international students are being turned away, that could have helped the situation.
I’m a day late with this. Labor compensation as a share of national income fell to a new historic low in Q2:
https://fred.stlouisfed.org/graph/?g=1XQPg
Notice how the trajectory has been downward since around 1970, but that the 2000-2010 period and the Covid-era period since 2020 have been particularly bad for labor. It’s interesting, I think, that in the 2000-2010 period, the Shiller P/E ratio suffered right along with labor compensation, but in the Covid era, the Shiller P/E has hit extraordinary highs while labor’s share of national income has fallen to an historic low and is still falling fast:
https://www.multpl.com/shiller-pe
In 2000-2010, housing finance sucked up an awful lot of financial liquidity; now, it’s stocks.
Here’s one more comparison, this one between labor’s share of income and the U. Michigan consumer sentiment index:
https://fred.stlouisfed.org/graph/?g=1XQPi
Looks like a pretty good match, with sentiment improving whenever labor’s share stabilizes – we’re a happy lot, so no need for actual gains – and sentiment deteriorating when labor’s share declines.
There’s plenty of room for other factors around the edges – inflation and changes to survey methods matter – but the link between consumer moods and share of income looks like the big factor, and it’s often left out of the discussion. Some people feel left behind by a changing economy? Some age groups feel like they’ve been buried in debt and can never thrive? Some feel that the economy is rigged? Some think trade and immigration have hurt them? Every one of these stories fits with the decline in labor’s share.
Mamdani, AOC, el Sayed, Bernie, Warren, Porter – they’ve all made this issue part of their schtick. They’ve all faced attacks from the center, including from other Democrats. Seems pretty obvious; class warfare is a real thing, it’s never-ending, and regular working folk are losing.
Labor compensation as a share of national income had been 56% before the Great Recession but fell to around 53% for years not including that COVID bump. It’s now before 50% which is alarming.
Off Topic.
ISW has a remarkable report on a transcript of a supposed call between Putin and a supposed commander in Ukraine.
“The voice purporting to be the division commander identifies himself in the audio recording as Colonel Shikhabidov, who is reported by multiple Russian sources to have died in May 2025.[2] Russian sources report that the current commander of the division is Denis Shishov.[3] Putin does not name the commander during the conversation. The error calls into question the authenticity of the exchange”
The people trying to make up a rosy reality at the front are so disconnected from that reality that they have a dead man talking.