Friday, July 6, 2012
The U.S. labor market remains front and center today following another disappointing monthly jobs report this morning. Thursday’s report from Automatic Data Processing (ADP) had raised hopes that we would break the negative cycle of back-to-back disappointing jobs numbers of the last three months. But it was not to be, as this seems to be the new norm on the labor market front.
There is no doubt now that the brief spurt of labor market momentum during the winter months is now firmly behind us. Economists will debate the causes of the economic slowdown this Spring, but the trend is quite clear. Monthly job gains averaged 75K in the second quarter, down sharply from first quarter’s monthly pace of 226K.
The question at this stage is whether these jobs numbers are bad enough to prompt a fresh response from the Fed. I thought a number around 50K today would qualify for that type of response, but today’s number is not much better. But irrespective of what the Fed does or does not do, these numbers are not good enough to produce a meaningful improvement in household buying power.
The Bureau of Labor Statistics (:BLS) reported June non-farm payroll gains of 80K, below the roughly 100K expected and the 77K jobs in May (revised higher from 69K originally reported). The revisions trend was mixed, with May revised higher and April revised lower. For context, keep in mind that monthly job gains totaled 84K in June 2011. The unemployment and the labor force participation rates remained unchanged at 8.2% and 63.8%, respectively.
Thursday’s ADP report of strong private sector job gains seems like a distant memory now as we can’t see any of those jobs in today’s BLS report. A total 84K private sector jobs were created in June, with the government sector suffering job losses of 4K. This compares to private sector jobs of 105K in the month before and 102K in June 2011.
Manufacturing added 11K jobs in June, compared to 9K in May and 10K in April. Service sector jobs totaled 71K, down from 126K in May and 81K in April. Temp jobs increased, up 25.2K in June from 18.6K in May. The average workweek edged by 0.1 hours to 34.5 hours, while average hourly earnings increased by 6 cents to $23.50. The June average hourly earnings are up 2% from the same period last year.
Either way you slice it, today’s report doesn’t paint an inspiring picture of the U.S. economy. It isn’t so much the difference between the 80K jobs reported this morning and the expectation of about 100K, but the fact that we are witnessing another slowdown in the economy.
The only positive one could take away from this report is that the labor market recovery is still underway; it may be slow, halting and underwhelming, but the economy is nevertheless producing jobs and not shedding them. Given the unfavorable global backdrop, with Europe in recession and China slowing down, that has to count for something.
Director of Research
Friday, July 6, 2012