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Weekly Economic Commentary


July Employment Situation: Pickup in Hiring Brings Relief, But Hardly Sufficient

August 5, 2011

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Civilian Unemployment Rate: 9.1% in July vs. 9.2% in June. Cycle high jobless rate for recession is 10.1% in October 2009.

Payroll Employment: +117,000 in July vs. +46,000 in June. Private sector jobs increased 154,000 after a gain of 80,000 in June.

Private Sector Hourly Earnings: $23.13 in July vs. $23.03 in June; 2.3% yoy increase in July vs. 2.0% gain in June.

Table 1 - 08 05 2011

Household Survey
– The unemployment rate in July at 9.1% is not significantly different from the June reading of 9.2%. It has essentially moved between 9.0% and 9.2% during the last four months. The broadest measure of unemployment (includes the officially unemployed who have looked for work in the past month, part-time workers who would prefer full-time employment and discouraged workers who have looked for employment in the past 12 months) also declined slightly to 16.1% in July from 16.2% in the prior month. The labor force has barely risen in the first seven months of the year and has accounted for a part of the decline in the unemployment rate during July. The employment-population ratio edged down to 58.1% in July from 58.2% in June (see Chart 2). This ratio stood at 62.7% in December 2007, amounting to a 4.6 percentage point reduction of this ratio even after eight quarters of economic growth. To put things in perspective, the reduction in the employment-population ratio during the prior four recessions has ranged between 1.6 and 2.4 percentage points.

Chart 1 - 08 05 2011

Chart 2 - 08 05 2011


Establishment Survey – Nonfarm payrolls increased 117,000 in July, which is an unambiguous improvement in hiring. Also, upward revisions of payroll estimates of May and June show a gain of 56,000 jobs. Private sector employment rose by 154,000 in July, reflecting increases in payrolls in various sectors of the economy.


Chart 3 - 08 05 2011

Factory sector hiring rose 24,000 in July, after an increase of only 18,000 in the May-June period. The diffusion index for manufacturing employment declined in July as manufacturing employment increased, suggesting that the increase in employment was concentrated. Half of the increase in manufacturing employment occurred in the motor vehicles sector. These two facts suggest that manufacturing was boosted by the resumption of motor vehicle parts shipments from Japan. Of course, previous months increases in manufacturing employment were depressed by the interruption of parts shipments from Japan. The real test will be the behavior of motor vehicle employment in the next couple of months.


Chart 4 - 08 05 2011

Construction payrolls increased 8,000, after a loss of 5,000 jobs in June. Private sector service employment advanced 112,000 in July. Health care employment continues to be one of the strong sectors of the economy, with employment growing by 31,000 in July and 299,000 in the past twelve months. Retail employment rose 26,000 in July, while employment in professional and business services moved up 18,000. Financial sector employment fell 4,000 in July following a decline of 8,000 jobs in the prior month. During the past month, a significant number of layoffs have been announced. The Challenger report reports layoffs in July were the highest since March 2010; these numbers are reflected in the employment report with a lag. The implication is that soft numbers for payrolls in the near term should not be surprising. A partial offset to this impact will be the return of workers following a resolution of the recent State of Minnesota partial shutdown. The important takeaway is that hiring is still on a shaky path.


Chart 5 - 08 05 2011

Government employment fell 37,000 in July, with the state (-23,000) and local (-16,000) accounting for the entire decline as federal government hiring rose by 2,000. In the current recovery, the private sector has been source of job growth. As Chart 6 indicates, government employment is still below the level posted in June 2009 (see Chart 6), the official end of the recession. The budgetary challenges of all levels of government suggest that their payrolls are unlikely to show an increase in the near term.

The increase of the manufacturing man-hours index (+0.3%) in July bodes positively for factory production in July, particularly the auto sector. The 0.4% increase in hourly earnings to $23.13 and the increase in payrolls points to a noticeable jump in personal income during July.


Chart 6 - 08 05 2011

– Following a string of worrisome financial and economic developments – the recent sharp drop in equity prices and impact on household net worth, ISM manufacturing and non-manufacturing surveys of July, consumer spending in June, GDP numbers of the second quarter and downward revisions of the first quarter GDP – the July payroll numbers are a source of immense relief. That said, the pace of hiring is still woefully inadequate to meaningfully stimulate consumer spending. Although the hourly earnings increase in July is encouraging, it is a single month’s gain. More importantly, disposable personal income shows a significant decelerating trend (see Chart 7). The policy statement issued after the August 9 FOMC meeting is likely to note that economic conditions have weakened since the June meeting. The Fed has consistently maintained it stands ready to take appropriate action to support the economy if economic conditions called for it in the near term. Among the realistic options available at this time, the Fed could change the “extended period” reference to stand for more than 2-3 meetings and/or it could lower interest on excess reserves.

Chart 7 - 08 05 2011


 Table 2 - 08 05 2011









The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.