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Weekly Economic Commentary

 
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July Employment Situation – Labor Market is Improving at Snail’s Pace

August 3, 2012

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Civilian Unemployment Rate: 8.254% in July vs. 8.217% in June. The cycle high jobless rate for the recent recession is 10.0%, registered in October 2009.

Payroll Employment: +163,000 jobs in July vs. +64,000 in June.

Private sector jobs increased 172,000 after a gain of 73,000 in June. A net loss of 6,000 jobs due to revisions of payroll estimates of May and June.
Private Sector Hourly Earnings: $23.52 in July vs. $23.50 in June; 1.7% y-o-y increase in July vs. 2.0% gain in June.

HIGHLIGHTS OF THE JULY 2012 EMPLOYMENT SITUATION

DEC 080312 Chart 1
Household Survey –The official headline for the July jobless rate is 8.3% vs. 8.2% in June.  The unrounded unemployment rate of July at 8.254% is little different from the 8.217% reading of June.  The broader measure of unemployment (U-5) which includes those marginally attached (Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months.) held steady at 9.7%. 

Chart 1

DEC 080312 Chart 2 

Details matter as they often add interesting color to the story.  First, starting with the unemployment rate, the jobless rate of adult men (7.7% vs. 7.8% in June), African Americans (14.1% vs. 14.4% in June), and Hispanics (10.3% vs. 11.0% in June) fell in July, while that of teenagers (23.8% vs. 23.7% in June) rose.  Second, the percent unemployed for six months and over declined to 40.7%, the lowest since December 2009, from 41.9% in June.  Chairman Bernanke has often referred to this statistic in his remarks on the labor market.  Third, the median duration of unemployment plunged to 16.7 weeks in July from 19.8 weeks in the prior month.  Pulling these strands together, the labor market is improving but at a snail’s pace and there is more positive news buried in the report than what the bearish headline jobless rate conveys. 

Chart 2

DEC 080312 Chart 3

Establishment Survey – Payroll employment increased 163,000 in July following a downwardly revised gain of 64,000 in June.  The May and June revisions resulted in a net loss of 6,000 jobs.  As Chart 3 shows, the pace of hiring improved in July, with a turnaround in the 3-month moving average also.  Seasonal factors could have distorted the gain in auto sector employment (+12,800) during July and raised overall nonfarm payrolls.

Chart 3

DEC 080312 Chart 4

Highlights of changes in payrolls during July 2012:
Construction: -1,000 vs. +4,000 in June
Manufacturing: +25,000 vs. +10,000 in June
Private sector service employment: +172,000 vs. +73,000 in June
Retail employment: +7,000 vs. -3,000 in June
Professional and business services: +49,000 vs. +44,000 in June
Temporary help: +14,100 vs. +21,100 in June
Financial activities: +1,000 vs. +3,000 in June
Health care: +12,000 vs. +11,300 in June
Government: -9,000 vs. -9,000 in June 

The overall man-hours index rose only 0.1% in July, while the factory man-hours index increased 0.4%.  The latter suggests strong factory production in July after a 0.7% gain in June.  The meager increase in hourly earnings (+0.1%) points to a moderate increase in personal income during July.  The trend of hourly earnings continues to indicate that wage inflation is not problematic. 

Chart 4

DEC 080312 Chart 5

Conclusion – The nature of US economic reports in the last three days – employment numbers, ISM factory survey and auto sales of July and construction outlays of June – is a mixed bag without doubt.  The ISM composite index is skirting around the expansion/contraction region, with readings of June (49.7) and July (49.8) a tad shy of the critical 50.0 mark.  Auto sales slipped to 14.1 million units in July from a revised 14.4 million tally in June.  Although residential construction outlays rose at a slower pace in June (+1.3%) vs. May (+3.0%), they moved up at an annual rate of 15.5% in the second quarter vs. a 4.2% gain in the first quarter.  Economic data point to an economy that has shifted to a lower gear of operation compared with a few months ago.  The outcome of the July 31-August 1 FOMC meeting is evidence that the Fed is willing to wait before it provides more stimulus.  The essential inference from the policy statement, which stressed that the FOMC will take action if necessary, is that incoming reports need to offer binding proof that additional Fed accommodation is required to ensure self-sustained economic growth and that pre-emptive easing is not likely, for now.  That said, Chairman Bernanke’s Jackson Hole speech at the end of the month is awaited for new insights.  The next FOMC meeting is scheduled for September 12-13, 2012.

Change in payroll employment from prior month (‘000s)

DEC 080312 Chart 6

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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.
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