Inside the Jobs Report: The Good, the Bad, and the Ugly

The BLS released the July Employment Situation Summary today (the combination of the Establishment and Household Surveys) and the results were mixed.  The seasonally adjusted numbers showed an increase (in the Establishment Survey) of 117,000 jobs (with a gain of 154,000 from the private sector) and a unemployment rate (U-3) ticking down slightly to 9.1% (from the Household Survey).  The more inclusive (but not entirely appropriate to use for all occasions) U-6 number also ticked down one notch to 16.1%.  The labor force participation rate was down again to 63.9, a level we haven’t seen since 1984 and the employment population ratio also dropped by one tick to 58.1.  While the net job creation from the Establishment Survey was pretty good (and beat expectations), the underlying numbers from the Household Survey were fairly bleak, with the labor force declining and the number of employed (seasonally adjusted) declining as well (by 38,000).

The good news from the report is that both May and June were revised up sharply (as has been the pattern since job creation resumed, with the sole exception of last month) to a +53,000 in May (from 25,000) and +46,000 in June (from 18,000).  Other good news from the report was that manufacturing employment grew again adding 24,000 jobs in July and that most of the state layoffs were due to the Minnesota shutdown and thus roughly 20,000 of the 23,000 state job losses will likely come back next month (in other words discount it in both).  Finally, the unadjusted (for whatever worth you put in unadjusted numbers) Household Survey numbers were really strong showing a +250,000 job growth for July.

The bad news from the report was that labor force participation continues to decline and that the job growth we are seeing simply is not enough to bring our economy back online and would otherwise lead to a stagnant unemployment rate but for the falling labor force numbers (the denominator in the unemployment rate calculation).  Also, while the unadjusted Household numbers were good, the unadjusted (again for whatever worth you place in unadjusted numbers) private sector Establishment numbers were not, as they showed a loss of 4,000 jobs.

The ugly news is that the distribution of unemployment doesn’t look to be changing anytime soon, with college graduates experiencing only a 4.3% unemployment rate, while those with only a high school diploma are at 9.3% and those without a high school diploma are at 15% (this is the real tale of two economies).  Also, in the ugly news category is that the number of those not in the labor force but would like to work also rose slightly last month and the mean duration of unemployment rose again to 40.4 weeks.

The economic numbers from this report, coupled with those from other recent reports suggest that the economy is entering (has entered) a period of stagnation and with the recent take downs of third quarter/full year GDP estimates from some of the big Wall Street Houses (like JP Morgan), it appears that we could stay in this stagnation for a while.