What You Should Know About the Jobs Report

Bottom line:  Not much to see here. Really. The full takeaway is an improved report compared to the poor prior months but there is softness underneath the top-line results in a continuing weak economy. Regarding political implications, due to the current weak state in the economy, this jobs report and the next three before the election will only confirm preconceived views on the economy and/or the President absent a breakout report (high or low) above 200-250k or below 0.

As predicted there is enough in this report for each partisan side to make some nominal hay for their side following this morning’s jobs report.

  • The Obama campaign will tout the micro-gains — an uptick in jobs last month, especially the private sector (up 172k)
  • The Romney campaign will tout the macro-weakness — an uptick in overall unemployment rate to 8.3% which would have been 8.4% if people hadn’t dropped out of the labor force again

They are both right. It is simply a matter of whether you are predisposed to give Obama a pass on the economy or you think the economy can and should do much better. Today’s report has plenty for both sides:

U.S. payrolls increased by a seasonally adjusted 163,000 jobs last month, the Labor Department said Friday, but the unemployment rate, obtained by a separate survey of U.S. households, ticked up one-tenth of a percent to 8.3%. Economists surveyed by Dow Jones Newswires expected a gain of 95,000 in payrolls and an 8.2% jobless rate. The latest payroll numbers are encouraging after three months of weak job creation, but the figures still aren’t enough to lower the unemployment rate, and hiring remains well below the pace set at the start of the year.

June and May payroll numbers were revised with only a small net effect—June payrolls rose 64,000 compared with the initially reported 80,000, and May was up 87,000 versus an earlier estimate of 77,000. The Labor Department Friday said private companies accounted for all of the growth in July payrolls, adding 172,000 jobs during the month. Governments, meanwhile, shed 9,000 positions. The federal work force shrank by 2,000.

Average earnings edged up by two cents to $23.52 an hour, while the average workweek was unchanged at 34.5 hours. A broader measure of unemployment—which includes job seekers as well as those in part-time jobs—rose to 15.0% in July from 14.9% the previous month.

Quick thoughts:

  • Much of the private-sector job improvements were in non-sustainable areas.  The manufacturing gains were due to auto manufacturers simply not shutting their plants like normal (+13k). This means 13,000 jobs were added back into the overall number that really weren’t new jobs created.  Also leisure and hospitality accounted for another +29k — these are waitresses and bartenders (or similar), not exactly the backbone of an economy.
  • This continues to be the longest stretch of 8% or higher unemployment since the Great Depression, 42 straight months.
  • If the labor force participation rate was the same as when Obama took office in January 2009, the unemployment rate would be 11.0%.
  • Unemployment for blacks fell from 14.4 percent to 14.1 percent, while the rate for Latinos slid from 11 percent to 10.3 percent. The unemployment rate for teenagers edged higher to 23.8 percent.
  • Average hourly earnings are up 1.7% over the last year, which is actually the same rate as inflation (that’s June12/June11 for inflation since we don’t have July’s price report yet).  Flat real paychecks are better than falling paychecks, but that’s a slow pace of wage growth, consistent with all the slack in the job market.
  • The seasonal adjustments factor is rightly confusing.  Don’t waste your time on it.  Just know that this occurs every month and it is a fudge factor that does shake the credibility of reports. The effect this month was seen in the household survey showing that the actual amount of Americans working dropped by 195,000, with the net job gain resulting primarily from seasonal adjustments in the establishment survey. This means no jobs were actually created, just the seasonal adjustment pushing the released figure into positive territory.
  • Regardless of the noise the seasonal adjustment creates, looking at the macro-trend you see a sputtering economy with weak job growth.

2 Trackbacks

  1. […] line (from two months ago) still applies today: Not much to see here. Really. The full takeaway is an improved report […]

  2. […] August, I wrote the following regarding the monthly jobs […]

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