Economic Data 09/01: Labor market begins to crack

187,000 new jobs created in August, while unemployment rate unexpectedly hits 3.8%

August nonfarm payrolls rose more than expected, reaching 187,000 jobs compared to 157,000 jobs last month.

However, according to past data, every monthly jobs report from 2020 to now has been revised downward, meaning this figure could continue to be adjusted lower next month.

However, the unemployment rate rose significantly from July to 3.8%.

Average hourly earnings rose 0.2% from the previous month, up 4.3% from a year ago. Both increases were below forecasts. Overall, job growth and wage growth slowed to levels consistent with stable inflation.

Manufacturing PMI higher than expected - Stagflation concerns

July Manufacturing PMI reached 47.9, down from 49 in June. ISM Manufacturing rose from 46.4 to 47.6 (beating expectations of 47), indicating contraction in the manufacturing sector.

Manufacturers have also warned in advance of difficult conditions in August, largely due to Demand decline → Order volume decline → Output decline → Prices rise → Stagflation. Companies are expected to continue scaling back production in the near future.

Freight transportation industry

Looking at indicators from FreightWaves, recently the Outbound Tender Rejection Index (OTRI) rejection rate has risen to 4%, the highest in the past 6 months.

Electronic order volume (Outbound Tender Volume Index - OTVI) has increased since the beginning of the year and remained stable, except for holidays.

However, while demand is increasing, the rejection rate by carriers is also rising, indicating too much truck (capacity) available for freight loads.

Specifically, over the past 30 days, carrier rejection rates rose to 26%, while order volume only increased 1%. Large and small trucking companies are exiting the industry, meaning fewer trucks to transport goods.

The main reason for this situation is due to low freight rates near break-even. Throughout this year, truck shipping rates have fluctuated from 1.50 - 2.10 USD/mile. Meanwhile, average transportation costs are 1.56 to 1.90 USD/mile, making it difficult for companies to sustain long-term operations.

In addition, trucking companies are also under pressure from some macroeconomic factors such as:

• High fuel prices due to negative impacts from the global economy putting pressure on trucking companies.

• Post-Covid consumer demand decline: Consumers are no longer buying goods as much as during the pandemic. Instead, they are spending more on services, travel, dining. According to data from AFS Logistics, LTL carrier freight volume fell 17% from 2021 to 2022, and another 5% in Q1/2023. United Parcel Service and FedEx said reduced consumer demand is driving companies to control costs.

In May 2023, logistics company XPO cut staff to optimize costs. Yellow Corp. - the 99-year-old trucking giant - also declared bankruptcy last month due to over-expansion. Despite receiving a $700 million loan from the federal government, it could not avert the financial crisis.

The collapse of the country's largest trucking company could trigger a chain reaction across the entire national supply chain.