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 July looks softer but focusing on the private sector shows that any softening is very marginal. Nonfarm payroll employment increased by 92,000, after posting advances of 126,000 in June and 188,000 in May. July's payroll increase was below the consensus projection for a 125,000 boost in payrolls. June's payroll number was revised down 6,000 from the initial estimate of 132,000 new jobs and May was revised down 2,000 from the previous estimate of a 190,000 gain. For June and May combined, the net revision was down 8,000. However, most of the softening in payrolls in July was in a 28,000 drop in government payrolls. Private payrolls rose by 120,000 in July after a 107,000 boost in June. The decline in government jobs primarily was in local and state government education-categories that can have difficult-to-adjust seasonal swings at the start or end of summer.
On a year-on-year basis, nonfarm payroll employment rose 1.4 percent in July, down slightly compared to being up 1.5 percent in June.
Within the payroll survey, gains primarily were in service-providing industries - goods-producing industries were mostly down. Manufacturing slipped 2,000, following a 13,000 decline in June. Natural resources & mining jobs increased by 2,000 in July while construction fell 12,000 in June after rising 3,000 in June. Overall service-providing industries increased 104,000 in July, following a 133,000 gain in June. Service-providing gains were led by education & health services, up 39,000; financial activities, up 27,000, and professional & business services, up 26,000. The key decliner was government, down 28,000.
On the inflation front, average hourly earnings increased 0.3 percent in July, after posting a 0.4 percent boost in June. The consensus had forecast a 0.3 percent increase in wages for July. The average workweek in July edged down to 33.8 hours from 33.9 hours in June, coming in below expectation of 33.9 hours.
Aggregate hours in manufacturing were unchanged in July, following a 0.5 percent jump in June. July's number suggests a sluggish industrial production report for July.
Turning to the household survey, the civilian unemployment rate edged up to 4.6 percent in July from 4.5 percent the month before. The consensus had projected an unchanged unemployment rate in July. Household employment slipped 30,000 in July, following a 197,000 boost in June. The labor force rose 159,000 in July, while the number of unemployed rose 188,000.
Today's report shows a slight softening in the labor market. However, most of the softening in payrolls was in difficult-to-seasonally-adjust education jobs in the state and local government sectors. Overall, the economy is much as it was a month ago. The slowing in wages to a 0.3 percent rise is good from the Fed's perspective as is the 4.6 percent unemployment rate. The bottom line is that the labor sector is still in good shape. The markets should find today's report "OK" and should focus on earnings.
Nonfarm payroll employment posted a 132,000 gain in June, following a 190,000 jumped in May and 122,000 in April. Payroll gains have been healthy over the first half of 2007, averaging 145,000 per month. With initial unemployment claims declining in four out of the last five weeks, we are likely to see a somewhat strong jobs gain in July. Average hourly earnings eased slightly to a 0.3 percent in June from a 0.4 percent boost in May. Another 0.3 percent rise would be seen as favorable progress on the labor cost portion of inflation. The civilian unemployment rate was unchanged at 4.5 percent in June and remained barely above the cycle low of 4.4 percent most recently seen in March.
Nonfarm payrolls Consensus Forecast for July 07: +125,000
Range: +60,000 to +160,000
Unemployment rate Consensus Forecast for July 07: 4.5 percent
Range: 4.4 to 4.6 percent
Average workweek Consensus Forecast for July 07: 33.9 hours
Range: 33.8 to 33.9 hours
Average hourly earnings Consensus Forecast for July 07: +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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