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
While it looks like the first half of 2008 dodged recession, the August jobs report suggests that there is a strong chance that the economy is headed there now. The unemployment rate now is at its highest since September 2003. But first, nonfarm payroll employment in August fell 84,000, following a decline of 60,000 in July and a decrease of 100,000 in June. Payroll jobs have fallen for eight consecutive months. The August drop in employment was worse than the market forecast for a 75,000 decline.
The latest decrease was widespread. Manufacturing and construction jobs fell by 61,000 and 8,000, respectively. Service-providing jobs declined 27,000 after falling 12,000 in July. Revisions to overall payroll jobs in June and July were a net decrease of 58,000. On the inflation front, average hourly earnings posted a 0.4 percent gain in August, topping the consensus expectations for a 0.3 percent increase.
Within service-producing industries, weakness was led by a 53,000 drop in professional and business services - largely temp help. The next largest decline was in trade, transportation & utilities - primarily a 20,000 drop in retail trade. Modest decreases were seen in most of the other service-providing categories.
Average weekly hours were unchanged at 33.7 hours in August.
On a year-on-year basis, nonfarm payroll employment slipped to down 0.2 percent in August from down 0.1 percent in July.
Turning to the household survey, the labor market continues to weaken. The civilian unemployment rate jumped to 6.1 percent from 5.7 percent in July and was worse than the consensus forecast for an increase to 5.8 percent. August's number is the highest since the 6.1 percent seen for September 2003.
The August employment report clearly shows a weakening in the economy after a second quarter resurgence. Today's numbers are likely to dump on equities and boost bonds, lowering yields. In turn, the dollar should slip. The August employment report does not bode well for company profits in general in the near term.
Nonfarm payroll employment has been in recession for some time - even though the overall economy has dodged contraction so far. The July jobs report posted the seventh consecutive decline in payroll jobs with a drop of 51,000 - the same as June's decrease. The latest fall was led by declines in manufacturing and construction with losses of 35,000 and 22,000, respectively. Service-providing jobs traditionally are the last to fall going into recession or downturns and that actually happened in July with a dip of 5,000. Looking ahead the uptrend in initial jobless claims and decline in employment indexes in various regional surveys suggest another notable decline in payroll jobs in August. On the inflation front, average hourly earnings posted a 0.3 percent gain in July. The soft jobs market will likely keep wages from rising any faster in August. The civilian unemployment rate in July rose to 5.7 percent from 5.5 percent the month before. Look for another rise in August.
Nonfarm payrolls Consensus Forecast for August 08: -75,000
Range: -150,000 to -60,000
Unemployment rate Consensus Forecast for August 08: 5.8 percent
Range: 5.7 to 5.9 percent
Average workweek Consensus Forecast for August 08: 33.7 hours
Range: 33.6 to 33.7 hours
Average hourly earnings Consensus Forecast for August 08: +0.3 percent
Range: +0.2 to 0.4 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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