• June payrolls fell 125,000, as Census jobs dropped by 225,000. Private payrolls rose 83,000, up from 33,000 in May. The unemployment rate dropped to 9.5%, from 9.7%.
• Good News:
  • Private services job creation accelerated to 91,000, from 20,000 in May.
• Bad News:
  • Manufacturing jobs rose only 9,000, down from 32,000 in May.
  • The workweek fell and hourly earnings fell, driving consumer incomes lower.
  • Unemployment fell only because the labor force dropped by 652,000, as some people gave up looking for work.
• The report is the latest in a series of data releases showing that the economy has lost momentum, though that does not mean the economy will "double dip."
• We think that GDP growth in the second quarter was still near 4%, but that is in the past now. We are looking for growth only in the 2.0–2.5% region during the second half of the year.

The June jobs report could have been worse—but it wasn't good. Private payrolls rose 83,000, which is less than consensus expectations. But after the bleak consumer confidence and ADP employment reports earlier in the week, the markets had probably feared worse. The 83,000 increase is better than May's revised 33,000 gain, but is still weak. And the details of the report were discouraging—the workweek shrank, hourly earnings fell, and the unemployment rate dropped only because the labor force fell even more than employment.

In the details, manufacturing added 9,000 jobs, the smallest increase this year. Durable goods added 13,000, while nondurables fell 4,000. The manufacturing workweek fell back to 40.0 hours, from 40.5 hours in May. Production-worker hours fell 1.0%, reversing May's gain, and pointing to a decrease in manufacturing output during June. Manufacturing remains the strongest part of the economy, but even it is losing momentum as the impetus from the turn in the inventory cycle begins to wane.

Construction continued to shrink, shedding 22,000 jobs, following a 30,000 loss in May. Residential categories lost 6,000 jobs, while nonresidential lost 17,000. Heavy and civil engineering added 1,000, perhaps propped up by stimulus spending. The nonresidential losses suggest that private nonresidential construction spending has still not reached bottom, and residential construction employment is being hurt by the renewed decline in housing starts after the expiry of the homebuyers' tax credit.

In the private services sector, 91,000 jobs were added in June, after a 20,000 increase in May. Of these, 21,000 jobs were temporary. Leisure and hospitality added 37,000 jobs, after an unusually weak May (when it lost 8,000 jobs), with a big upswing in amusements and gambling. Retail trade, information, and financial services all lost jobs, as in May, while the health sector had another small increase of just 9,000 jobs.

The government shed 208,000 jobs, as 225,000 temporary Census workers were let go. Overall federal employment fell 198,000, as non-Census employment rose. State and local governments shed 10,000 jobs, as budget cuts continued to take their toll; further severe cuts are in prospect here, given the increasing pressure on state and local budgets as federal stimulus support is phased out.

With private employment rising but the workweek down, total hours-worked in the private sector fell 0.2%, the first drop since a weather-distorted decrease in February. That leaves hours up 3.3% at an annual rate in the second quarter, faster that the 2.4% increase in the first. That suggests an acceleration in second-quarter GDP growth from the 2.7% rate in the first quarter, but means little momentum entering the third quarter. Average hourly earnings fell 0.1%, further depressing income growth when combined with reduced hours.

The unemployment rate fell to 9.5%, from 9.7% in May. Household employment dropped by 301,000, but the labor force fell even more, by 652,000, suggesting that some people gave up looking for work. This is consistent with the story told by the Conference Board consumer confidence survey, which showed that labor-market perceptions had deteriorated. The labor-force decline may have been exaggerated by the loss of Census workers, some of whom (especially retired workers) may no longer be seeking work. It is also possible that some of those who have lost unemployment benefits due to the expiry of the extended programs at the beginning of June may now be declaring themselves to be out of the labor force.

The most comprehensive measure of underemployment (U-6)—which includes workers who would like a job but are not currently looking, plus those working part time who would rather work full time—also fell in June, but only by one-tenth of a point, from 16.6% to 16.5%. The numbers of unemployed for 27 weeks and longer edged down by 12,000, but still represented a near-record high 45.5% of all unemployment.

This report is the latest in a series of weak economic indicators. We do not believe that the U.S. economy is heading for a double-dip recession, but the data are telling us that we entered the second quarter with plenty of momentum and exited it with very little. Stimulus programs for housing and consumer spending have expired, the inventory-cycle boost is fading, and the Eurozone sovereign debt crisis has tightened conditions in financial markets. We think that growth in the second quarter was still near 4%, but that is in the past now. We are looking for growth only in the 2.0–2.5% region during the second half of the year.