“I first heard of the 23 enigma from William S. Burroughs…According to Burroughs, he had known a certain Captain Clark, around 1960 in Tangier, who once bragged that he had been sailing 23 years without an accident. That very day, Clark’s ship had an accident that killed him and everybody else aboard. Furthermore, while Burroughs was thinking about this crude example of the irony of the gods that evening, a bulletin on the radio announced the crash of an airliner in Florida, USA. The pilot was another Captain Clark and the flight was Flight 23.”
Robert Anton Wilson
Proponents of the “23 enigma” hold that the number “23” commands outsized significance. This was even the subject of a 2007 film starring Jim Carrey — The Number 23. Think about it: we have 23 pairs of chromosomes, there are 23 letters in the Latin alphabet, Julius Caesar was stabbed 23 times… 23 is everywhere. More rational minds would say, however, that this is a textbook example of confirmation bias: the mind notices things that confirm what we already believe to be true.
Seeing the -23,000-headline nonfarm payroll print cross their screens Friday, “23 enigma” truthers added another arrow to their quivers. The shock fell short of every Bloomberg expectation and the 80,000-consensus. Making matters worse, both May and June were downwardly revised by a combined 103,000. Under the hood, (recession-proof?) Government was hit especially hard, registering a 53,000 decline that more than outweighed the meager 30,000 month-over-month (MoM) gain in the private sector. Local government (-57,000) and local government education in particular (-50,000) were the biggest losers.
Case in point: our ever-growing hometown of Dallas just released its budget proposal for next year that would cut roughly 300 positions across Libraries, Parks & Recreation, and Transportation & Public Works. Further, a Bloomberg article from June noted that leaders from seven of the nation’s 10 largest school districts were exploring staff reductions, facing headwinds from expiring pandemic-era funding and declining enrollments.
Markets digested the disappointing jobs data without any heartburn, choosing instead to view it as decreasing the odds of a Federal Reserve rate hike come September. As we write this, rates traders are pricing a 25-basis-point increase with a 43% probability, down from nearly 70% a week ago. While inflation in other areas the Fed cannot influence may be stubborn, wage inflation is not a beast the Fed is struggling to tame: average hourly earnings in July rose a paltry 0.05% MoM, the second-lowest print in the post-pandemic era after April 2025’s 0.03%.
The jobs report may have taken us further from a September rate hike, but it did take us closer to a recessionary benchmark. Notably, July marked the third month in the previous 12 with a 1st NFP print headline decline (blue line). Since 1980, every time that four declines are first witnessed in a trailing 12-month period, recession has struck (blue line). The history is clear as day:
- June 1980 (NBER recession began January 1980)
- September 1981 (recession began July 1981)
- October 1990 (recession began July 1990)
- April 2001 (recession began March 2001)
- March 2008 (recession began December 2007)
Over in the household survey, the one-tenth decline in the unemployment rate to 4.1% rang positively on its face. However, when contextualized alongside a decline in household employment (-87,000), a shrinking labor force (-264,000), and sclerotic population growth, we wouldn’t exactly call this a win for American workers. In fact, the labor force participation rate has fallen by 1.2 points in the last 18 months to its current 61.4%, marking a half-century low (green line). Furthermore, workers have gotten the short end of the stick of late. Topline Private NFPs saw modest increases in the last two months, registering identical +30,000 prints, but Workers saw outsized declines of 123,000 in June and 61,000 in July (blue and yellow bars). The upshot: Worker Payrolls have underperformed the aggregate in four of the last seven months.
What to make of the supposed pre-World Cup hiring bump? It’s true that Leisure & Hospitality saw a sizable jump in Worker payrolls in May: the sector’s 155,000 gain made up almost the entirety of the 157,000 Worker payroll gains that month. This said, it’s more than given back those gains as the summer has progressed, with June and July posting a combined 305,000 decline (red bars). Further tainting the World Cup hiring narrative is the complete lack of growth in “Performing Arts, Spectator Sports, and Related Industries” in the lead-up to soccer’s biggest event (green bars). From January to May of this year, the sector registered a net -1,000 decline. Then, in the last two months, another 20,000 jobs were shed.
As for the implications of labor softness on economic growth, Ben Herzon at S&P Global lowered their forecast, noting the following: “State and local employment and the payrolls of residential remodelers were both weaker than expected, implying less government consumption expenditures and residential improvements in Q3 than we previously forecast. On balance, we lowered our tracking forecast for third-quarter GDP growth by 0.1 percentage point to 2.1%.”
Beyond S&P’s forecasting, we can also look at aggregate hours worked as a reliable GDP proxy. On that front, the third quarter is starting on the wrong foot. (Remember one of QI’s many mantras: “Starting points matter!”). Private aggregate hours worked for all employees grew at a 1.4% quarter-over-quarter (QoQ) annualized pace in 2026’s second quarter but stalled to 0% in July (teal bars). Meanwhile, when isolating for Workers only, hours worked fell by 0.6% on a QoQ annualized rate in July after registering 1.3% growth in the prior quarter (pink bars). The lack of momentum is a red flag for GDP growth as we progress through the current quarter. While productivity could still lend a hand, the second quarter’s 1.4% was far softer than the 5.2% peak registered in 2025’s third quarter. Moving forward, we’ll keep our eyes peeled for more 23’s in the data, to see what other insights they may reveal.