Unemployment Drops in July, but Payroll Gains Are Scant

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Friday's Labor Department report on the employment situation is now out. July's unemployment rate fell to 7.4% from 7.6% in June, which was under the Bloomberg estimate of 7.5%. The economy was also shown to have added some 162,000 nonfarm payrolls in July, which compares to a consensus estimate of 175,000 from Bloomberg. The private sector payrolls added 161,000 jobs in July, versus an estimate of 187,000 from Bloomberg.

Note that the Labor Department reported on Thursday that first-time claims for unemployment benefit insurance fell by 19,000 to 326,000 in the past week, which was the final full week of July. This helped to set up a positive bias for Friday's key employment report. That figure was a post-recession low. Also note that TrimTabs showed that the payrolls were barely positive at only 23,000 jobs, while ADP projected that the economy added 200,000 jobs.

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This was the lowest unemployment rate on an official basis going back to the end of 2008. Unfortunately, this is a smaller-than-expected gain in payrolls, and we saw that some 26,000 payrolls were removed in total from the two prior monthly reports. Those pesky revisions!

While you might take this report as mixed, the good news for the easy-money bulls is that this low number of jobs created keeps the Federal Reserve in a position that it can keep justifying the $85 billion per month in bond buying alive and well. In short, the employment situation brings no end to quantitative easing yet.

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