August 2025
The August employment report continued the trend of cooling employment growth with August showing a gain of only 22,000 new jobs versus the expectation of 75,000. The employment rate ticked up to 4.3%, the highest in nearly 4 years but still not an alarming rate. The revision to prior month’s showed that the June report was revised to show that 13,000 jobs were lost in the month.
While the poor showing in August was likely enough ammunition to prompt the FOMC to cut rates at the September meeting, the preliminary annual revision to the prior year’s tally makes a rate cut a veritable lock. Every year the Bureau of Labor Statistics recounts the monthly number of jobs created to present a fully accurate representation of job growth. The monthly numbers are an estimation which is why their release comes with revisions to the prior month’s releases. The most recent annual revision is for the period April 2024 to March 2025 and the BLS revised the total for the period -911,000 lower. As originally counted, the monthly job gains averaged 146,500 per month for the period. After the revision, the monthly average falls to 76,000, nearly half of what was originally reported. The immediate question that comes to mind is that with such a large overcount, is the overcounting error still in place? If the answer is yes, then the potential exists that jobs are already contracting, and the Open Market Committee is already behind the curve in easing monetary policy.
Equally troubling was the announcement that Fifth Third Bank is writing off a $200 million loan to Tricolor Auto Group, a large independent used car dealer that specializes in lending to sub-prime buyers. Tricolor Auto filed for bankruptcy on Wednesday, September 10th. The company
had advertised that all that is needed to obtain a car loan is Proof of residence, proof of income, and a government issued ID. That was the extent of their credit analysis.
The CEO of Fifth Third described the write down as “marring otherwise strong results.” The comment brought to mind the oft used sarcasm of “Other than that, Mrs. Lincoln…” He went on to say that there will be a full review of the way collateral is managed. In the fixed income business, we call that “credit analysis” and that is to be done prior to making the loan, not after the debtor informs the lender that they can’t repay the loan.
We find the announcement particularly troubling given the proliferation of Private Lending over the last few years. It’s estimated that, new private credit origination grew by $1.5 trillion in 2024. Private credit targets small and middle market entities to lend money. We’ve worried that with so many small companies entering the business and the ferocious rate at which deals are being originated meaningful credit analysis is being neglected. It could be argued that if Fifth Third had done such analysis, the $200 million write down wouldn’t have “marred” otherwise strong results.”
