The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
The June jobs report showed further contraction in employment but the declines remain mild. Thus far, job losses are still at a rate soft enough to not pull the overall economy into recession. Nonfarm payroll employment in June fell 62,000, following a decline of also 62,000 in May and a decrease of 67,000 in March. The June fall in employment was a little worse than the consensus forecast for a 50,000 decline. The latest decrease was led by job cuts in construction and manufacturing with losses of 43,000 and 33,000, respectively. Service-providing jobs edged up only 7,000 after slipping 8,000 in May. Revisions to overall payroll jobs in April and May were a net decrease of 52,000.
The goods-producing sector was clearly weak with a 69,000 drop in employment. Meanwhile, service-providing jobs were essentially flat with a 7,000 increase after slipping 8,000 in May. Services strength was in a 29,000 increase in education & health services and an equal gain in government jobs. Leisure & hospitality also posted a 24,000 gain. Losses were led by a 51,000 fall in professional & business services and by a 10,000 dip in financial activities.
On a year-on-year basis, nonfarm payroll employment slipped to unchanged in June from up 0.1 percent in May.
The civilian unemployment rate remained elevated at 5.5 percent, matching the May level and consensus expectations. The May spike from 5.0 percent in April does not appear to be related to seasonal adjustment difficulties after all. The unemployment rate weakness was corroborated with a 16,000 boost in initial jobless claims in the report released this morning.
The average workweek was steady at 33.7 hours in June. For manufacturing, however, the average workweek edged down to 40.8 hours from 40.9 the month before. Aggregate hours in manufacturing fell a sharp 0.5 percent in June, following a 0.3 percent dip the month before.
The June jobs report shows employment on a mild downtrend. While the string of negative payroll numbers is not good news for the consumer, the pace should be kept in perspective. The job losses are still too mild to pull the overall economy into recession. Even incremental gains in productivity will keep overall economic growth slightly positive. While the economic picture certainly is not inspiring, neither is it cause for panic. Slow growth ahead.
Nonfarm payroll employment and unemployment trends have been pointing to a declining labor sector. Nonfarm payroll employment in May fell 49,000 led by declines in construction, professional & business services, retail trade, and manufacturing. On the inflation front, average hourly earnings advanced a moderate 0.3 percent in May. The biggest news was a half percentage point spike in the unemployment rate to 5.5 percent. While the household survey (which produces the unemployment rate) is relatively small - resulting in somewhat volatile monthly numbers - another factor may have been behind the surge. The May spike could have been caused by seasonal adjustment difficulties as May is when some college students enter the labor market. If more students enter the market sooner than seasonal factors assume, that will not be fully taken into account. While we may see a partial reversal in the unemployment rate jump, the weak economy will likely give us a sixth consecutive monthly decline in payroll employment for June.
Nonfarm payrolls Consensus Forecast for June 08: -50,000
Range: -110,000 to 0,000 (unchanged)
Unemployment rate Consensus Forecast for June 08: 5.5 percent
Range: 5.3 to 5.6 percent
Average workweek Consensus Forecast for June 08: 33.7 hours
Range: 33.7 to 33.8 hours
Average hourly earnings Consensus Forecast for June 08: +0.3 percent
Range: +0.2 to +0.3 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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