The chief economist for America’s Credit Unions said the outlook for the economy has shifted following Friday’s poor jobs report for July that included a “massive” downward revision in job gains for May and June.
The U.S. Bureau of Labor Statistics reported that U.S. non-farm employment grew by a seasonally adjusted 73,000 jobs from June to July, compared with a gain of 84,000 jobs in July 2024.
However, its heavy revisions for May and June cut the estimated jobs for May through July by 71%. Without revisions, there would have been 364,000 jobs gained over the three months. After the revisions, the job gains withered to 106,000.
“The latest jobs report was poor, showing modest job gains in July and massive downward revisions to prior months,” AmCU Chief Economist Curt Long said.
In July, AmCU lowered its estimate for a risk of recession in the next 18 months to 40%, down from 60% in April, saying damages from tariffs were less than expected, the stock market was rising, delinquencies were stable and unemployment remained low.
Long took a different tone after Friday’s jobs report.
“This report reframes several debates including the overall momentum in the economy, the impact of tariffs, and the prospect for rate cuts,” Long said. “Market expectations for a September rate cut jumped on the release of the report, and a cut by the October FOMC [Federal Open Market Committee] meeting is fully priced in.”
Joel Kan, deputy chief economist for the Mortgage Bankers Association, said the downward revisions also lowered the monthly average job gain so far this year to 85,000, about half of 2024’s monthly average.
The BLS also reported unemployment rose from 4.1% in June to 4.2% in July, even as labor force participation continued to decline as more workers dropped out of the workforce. Kan said a separate survey earlier this week showed that job openings, hiring and voluntary quits were moving lower, consistent with Friday’s report.
“The outlook for inflation and employment remains fragile, and MBA’s forecast is for the unemployment rate to increase to over 4.5% by the end of the year, peaking at around 4.8% in early 2026, as the economy continues to slow. We expect that this labor marketing softening will prompt the Fed to cut rates twice this year and once in 2026.”
Rising unemployment is one of the major factors that will raise credit unions’ Current Expected Credit Losses (CECL) charges because, obviously, people who don’t have income usually run short on cash to make loan payments. High loss provisions are one of the biggest factors lowering credit union net income.
The Mortgage Bankers Association has been revising its GDP forecasts downward for the last two months.
And NCUA analysts in a July 16 webinar stressed the weakness in credit union results and a rise in credit risks. They presented data that showed 12-month loan growth has been slowing to record lows. And despite delinquencies stalling in the first quarter, they had still been rising to record levels as recently as the fourth quarter.
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
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