Employment Situation

Sorry, there seems to be a problem at BLS and I have not yet been able to download the data as of 9:15.

After yesterday in the stock market we needed some good news and compared to reduced expectations the employment report provided it. Private payrolls rose by 117,000 a level
much better than the last two months data. Even though the previous months data was revised higher, on a smoothed basis the employment gains remain anemic.

Except for the early 2000’s cycle, this still remains the weakest cycle on record as far as job creation is concerned.

The unemployment rate ticked back down. However, this was due largely to a 193,000 drop in the labor force as the household survey reported that employment actually fell 38,000. This was the third decline in the last four months. So the household survey reported a drop in the number of unemployed , but that was only because the labor force contracted.

Typically the household survey tends to lead the payroll data and from that perspective the very weak job gains in the household survey is discouraging. The year over year gain for the household survey is only 0.2% as compared to 1.7% for the payroll data. Historically the payroll data has always had problems capturing jobs in small and start-up firms. So they use the birth-death model to adjust for this and one can not help but wonder how much of the reported gain in payroll jobs is due to this adjustment.

The average work week was unchanged. So together with the significant gain in payroll jobs the index of aggregate hours worked increased 0.2% after being unchanged in June.

The one item of good news in the report was a 0.4% jump in average hourly earnings. The year over year gain in hourly wages rose to 2.3% from the 2% gain in the previous month.

But with the workweek unchanged the gain in weekly earnings remained at 2.6%. I have been arguing all year that with wage growth so weak that higher inflation was not sustainable. Consumers are now trying to reliquify and are no longer willing to use their credit cards to offset weak real earnings. Consequently, when as we have seen in the first half of the year inflation tried to accelerate it will lead to economic weakness, not a self reinforcing inflationary cycle.

That is what we are seeing in the economy and markets. With oil prices down sharply and other commodity prices showing significant weakness we should see real income growth rebound in the second half.