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
Employment in June came in moderately healthy along with wage growth. Nonfarm payroll employment rose by 132,000, following gains of 190,000 in May and 122,000 in April. June's payroll increase was just above the consensus forecast for a 125,000 advance in payroll jobs. May's payroll increase was revised up 33,000 from the initial estimate of 157,000 new jobs and April was revised up 42,000 from the previous estimate of an 80,000 increase. For May and April combined, the net revision was up 75,000.
On a year-on-year basis, nonfarm payroll employment rose 1.5 percent in June - unchanged from May.
Within the payroll survey, gains primarily were in service-providing industries - goods-producing industries were mixed. Manufacturing fell another 18,000, following a 7,000 drop in May. Natural resources & mining jobs increased by 3,000 in June while construction rebounded 12,000 in June after slipping 2,000 in May. Overall service-providing industries increased 135,000 in June, following a robust 199,000 boost in May. Service-providing gains were led by education & health services, up 59,000; government, up 40,000; and leisure & hospitality, up 39,000. Leading decliners was the retail trade component, down 24,000.
On the inflation front, average hourly earnings increased 0.3 percent in June, following a 0.4 percent boost in May. The consensus had forecast a 0.3 percent increase in wages for June. Average hourly earnings edged down to up 3.9 percent on a year-on-year basis in June from up 4.0 percent in May. The average workweek in June rose to 33.9 hours from 33.8 hours in May, matching expectations.
Aggregate hours in manufacturing strengthened to a gain of 0.3 percent in June, following a 0.1 percent rise in May. The improvement is consistent with various manufacturing surveys - including ISM - that show a significant rise in manufacturing activity June.
Turning to the household survey, the civilian unemployment rate was unchanged at 4.5 percent in June - equaling the consensus forecast. Household employment rose 197,000 in June, following a 157,000 rise in May. The labor force jumped 310,000 in June, while the number of unemployed rose 114,000.
Today's employment report keeps the Fed on hold. Prior to the report's release interest rates were nudging higher and were holding after the report. Equities may well see the report as a Goldilocks outcome - just right - and may get a lift.
Nonfarm payroll employment has shown renewed strength on average in recent months. Nonfarm payroll employment posted a 157,000 gain in April, following a revised 80,000 increase in April and a 175,000 rise in March. Wage gains have been moderate over the last two months with average hourly earnings rising 0.3 percent in May, following a 0.2 percent gain in April. Notably, labor markets are still tight with the latest reading for the civilian unemployment rate coming in at 4.5 percent in May and just barely above the cycle low of 4.4 percent.
Nonfarm payrolls Consensus Forecast for June 07: 125,000
Range: 85,000 to 150,000
Unemployment rate Consensus Forecast for June 07: 4.5 percent
Range: 4.4 to 4.6 percent
Average workweek Consensus Forecast for June 07: 33.9 hours
Range: 33.8 to 33.9 hours
Average hourly earnings Consensus Forecast for June 07: +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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