In many ways the July employment was a mirror image of the June report, with modest upside surprises in all of the main components. Nonfarm payrolls rose 117k (consensus +85k), private payrolls rose 154k (consensus +113k), and the unemployment rate fell to 9.1% (consensus 9.2%). However, the lower unemployment rate reflected yet another decline in labor force participation. The employment-population ratio fell to 58.1%, the lowest since 1983. Although today’s reading temporarily allays fears of a double-dip, it also reinforces just how discouraging labor conditions are for job seekers.
BETTER THAN LAST MONTH
The best that can be said about the July employment report is that it was an improvement from the previous month. In addition to the 117k payroll gain in July, there was a net upward of 56k to June and May. In July, manufacturing employment rose 24k. This included a 12k increase in auto manufacturing, a clear sign that production in this sector has started to recover from the supply disruptions earlier in the year. Other sectors adding jobs included retail trade (+26k) and business services (+34k). The latter increase did not include an increase in temporary hiring. Temp help employment was unchanged in July, after small declines for the past three months. The government sector continues to be a major negative for the labor market, with a 39k decline in July. State and local governments have shed 611k workers since August 2008.
HIRING HAS SLOWED SINCE EARLIER IN THE YEAR The underlying rate of hiring has slowed since earlier in the year. July’s payroll gain is only about half the average increase of 215k from February through April. Similarly, the breadth of hiring is narrower than it was during that period. The payroll diffusion index – a measure of how many industries are adding workers – rose to 58.6. This is up from an average of 56.0 in May/June and down from an average of 67.2 in the February through April period.
EMPLOYMENT-POPULATION RATIO AT A NEW MULTI DECADE LOW The employment-population ratio is one of the clearest ways to illustrate the lack of overall progress in the labor market (see chart). This metric shows the number of employed workers as a percentage of the adult population. In the years prior to the recession, the ratio generally ranged from 62% to 63%. Today the ratio stands at 58.1%, the lowest since 1983. Even though the recession ended over two years ago, employment gains have barely been sufficient to keep pace with population growth.
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HSBC Global Research