The July jobs report was weak—just 71,000 private jobs added, of which 21,000 were in motor vehicles, propped up temporarily by shortened summer shutdowns. And the June report was revised negatively. The labor market improvement has slowed to a glacial pace, consistent with third-quarter GDP growth even slower than in the second. Over the last three months, private payrolls have risen an average 51,000 per month. In the three months to April, they had risen an average 154,000.
The headline loss of 131,000 jobs was distorted by a loss of 143,000 temporary Census jobs. But the loss of 48,000 state and local jobs was no distortion, just a reflection of budget cuts. The extra aid working its way through Congress cannot arrive soon enough.
In the details, manufacturing added 36,000 jobs, better than June (13,000), although the improvement was entirely due to an extra 21,000 jobs in motor vehicles, as some manufacturers shortened the usual summer shutdowns in order to rebuild inventory. Overall, durable goods added 36,000 jobs, and nondurables none. The manufacturing workweek edged up to 40.1 hours, from 40.0. Production-worker hours rose 0.5%, partially reversing June's loss, and pointing to an autos-led bounce in manufacturing output during July. Manufacturing is still growing, but has lost momentum as the impetus from the turn in the inventory cycle has faded.
Construction continued to shrink, shedding 11,000 jobs, following a 21,000 loss in June. Residential categories lost 17,000 jobs, as housing starts have declined following the expiry of the homebuyers' tax credit. There was an encouraging rise of 6,000 in nonresidential jobs, though. Heavy and civil engineering lost 1,000 jobs. The construction totals would have been roughly flat but for a strike that took out 10,000 jobs temporarily.
In the private services sector, 38,000 jobs were added in July, after a 34,000 increase in June. The health sector added 27,000 jobs, while trade, transport, and utilities added 25,000. The latter jobs were split among retail (7,000), wholesale (8,000), and transport and warehousing (12,000), which seems to show goods flowing through the pipeline to purchasers (of course, these goods may be imported rather than domestically produced). Temporary help jobs—which are classified in services, even though workers may be assigned to work for manufacturing companies—declined by 6,000, their first decline since September 2009. This is troubling, since temporary jobs are usually seen as a leading indicator. Financial services lost 17,000 jobs. Other service sectors were little changed.
The government shed 202,000 jobs, as 143,000 temporary Census workers were let go. There were still 196,000 Census workers in place, whose departure will drag down future reports. Overall federal employment fell 154,000, as non-Census employment fell. In addition, June's odd-looking increase in non-Census federal employment was revised away.
State and local governments shed 48,000 jobs, as budget cuts at the start of the fiscal year took their toll; and the job cuts estimated for May and June were revised to be more severe. The extra support for states that is presently working its way through Congress will help to cushion job losses later in the fiscal year.
The private workweek rose slightly, to 34.2 hours, reversing June's dip to 34.1 hours, primarily due to longer hours in manufacturing. The service-sector workweek has not moved since April. With private employment and the workweek both up, total hours-worked in the private sector rose 0.3%, more than reversing June's decline. Average hourly earnings rose 0.2%, further boosting income growth, so that total private payrolls rose 0.6%. As a result, there was a solid increase in purchasing power for those in work.
The unemployment rate held steady, at 9.5%. Household employment dropped by 159,000. The labor force fell similarly, by 181,000. The downward trend in labor-force participation continues to indicate that people are giving up looking for work. The labor-force decline may be exaggerated at present by the loss of Census workers, some of whom (especially retired workers) may no longer be seeking work. 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 held steady in July, at 16.5%. The numbers of unemployed for 27 weeks and longer fell by 179,000, although it is hard to know how encouraging that is, since we do not know whether those people found work or left the labor force. The only duration category in which unemployment increased this month was for those unemployed less than five weeks (up 70,000), which probably reflects newly unemployed ex-Census workers.
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 the economy left the second quarter with little momentum, and did not pick up speed in July. GDP growth in the third quarter will probably be below the second quarter's 2.4% rate.
The report intensifies the pressure on the administration and on the Federal Reserve (which meets next week) to try to revive growth. Extra help for the states has now jumped its key hurdle in the Senate, although it is not clear what extra stimulus the administration could get through Congress (where the very word "stimulus" has bad connotations). For the Fed, the news is not so bad as to make it want to take drastic action that might smack of panic. But at a minimum, we should expect it to announce the reinvestment of cash proceeds from maturing mortgages in its portfolio to stop its balance sheet from shrinking.
