July Jobless Picture Improves, Albeit Modestly


The July job report was improved from the previous month, but it was not enough to prevent the unemployment rate from increasing slightly from 8.2% to 8.3%.  We can draw positives in that job growth more than doubled from the previous month and gains were found in multiple industries.  As reported from a Wall Street Journal blog, one reason why the unemployment rate rose was due to an unusual divergence from the household and establishment surveys.  Even though the establishment survey showed job growth at 163,000 which exceeded estimates of 90,000, the household survey showed less growth of 108,000.

The difference between the two surveys is that the establishment report just looks at the number of jobs, whereas the household survey looks at individuals who have jobs.  There can be a difference between two reports because individuals with multiple jobs can distort the figures from the establishment report.  When looking at the household report, it also shows 195,000 fewer jobs in July from June.  That indicates people have left the labor force.  Therefore even though there was no change in unemployment, people dropping out of the labor force will result in the unemployment rate rising.

Additional labor statistics indicate that we did not see much change in discouraged workers.  While the 195,000 figure suggests that people were more discouraged, there was only a slight change in the civilian labor force participation rate, which fell from 63.8% to 63.7%.  Compared to a year ago, the number of discouraged workers are lower from last year by 267,000.  Lastly, a more comprehensive unemployment rate, which also includes discouraged workers and those underemployed, only increased by 0.1% to 15%.  While that seems high, it is much better than last year’s rate of 16.1%.

However, there remains persistent weakness in overall job growth and the unemployment rate has been above 8% for 42 consecutive months.  That is the longest period of sustained high unemployment rate since unemployment data has been collected since 1948.  Ironically, the second longest stint of unemployment rates above 8% was during the first term of President Ronald Reagan, where it lasted for 27 consecutive months.  However, President Reagan was able to recover from those tough circumstances to win a second term and enjoyed a more fruitful second term.

Even though the unemployment rate increased, we can be encouraged that the job gains were relatively broad based.  Key industries that saw boosts in employment in business and professional services, leisure and hospitality, and manufacturing of durable goods.  When looking at durable goods, this includes automobiles and auto parts.  Another aspect that was deceiving was the decrease of 8,000 jobs in utilities, which was mainly due a labor dispute.

On the other hand, there are areas that remain a concern.  In particular, there was little change in construction.  Typically, a robust recovery does not happen until the housing industry starts to rebound.  Even with home prices rebounding with a 2.2% increase in May, much more needs to be done in order to shrink the inventory of housing that is not performing.  Even though there was an increase in food and drinking services, the impact of a significant drought throughout the U.S. will impact retail trade as the food shortage will cause grocery prices to rise.

As we look to the future, here are questions that will bear watching.  Will rising housing prices continue through the rest of the summer?  How much will food and gas price increases affect consumer spending in the future?  How steep will the recession in Europe be?

In conclusion, there are a few encouraging signs that can be gleaned from this report.  While job growth must expand at higher rates, we can be encouraged that they beat analyst expectations of 90,000 jobs.  Even with poor weather conditions and global turmoil, the U.S. recovery remains resilient and unlikely to go into a double dip recession.

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