Jobs Still Missing

July’s closely watched jobs report showed an economy not headed for a double-dip recession or deflation but one that definitely has hit a soft patch. 

Nonfarm employment fell by 131,000 between June and July, with the ending of temporary work for 143,000 federal census employees leading the decline.  Layoffs by financially-strapped state and local governments also contributed to the drop.  Private sector jobs expanded for the seventh consecutive month, although the 71,000 gain was below par.  In March and April, monthly private-sector job gains had averaged about 200,000 per month.

What has happened since early spring?  Economic expansions often encounters periodic pauses.  The last few months have also faced a potential sovereign debt crisis in Europe, an expiration of the housing tax credit, and the passage of major health care legislation and regulatory reform that might have added to business uncertainty.  While financial conditions in Europe have improved considerably and housing appears to be stabilizing, uncertainty about government policies, including future taxation, is probably still a factor.

The unemployment rate remained steady in July at 9.5%.  Although employment fell, people also dropped out of the workforce to leave the jobless rate unchanged.  Some of these were probably people who had only entered the workforce to take one of the temporary Census jobs, while others, discouraged by their job search efforts, dropped out of the labor force.

All was not bad news in the latest report.  Manufacturing, which some thought was a lost cause in the United States, saw increased hiring for the seventh consecutive month.  This is the longest stretch of job growth we have seen in the factory sector since 1997.  Indeed, the industrial sector, in part because of overseas demand, particularly in Asia, seems to be leading the recovery.  Job growth, combined with increases in the average number of hours worked per week and hourly earnings per employed, pushed the total value of private sector payrolls up a respectable 0.6% in July.  This suggests that total incomes were expanding enough to prevent consumer spending from collapsing.

Despite continued high unemployment, deflation has not appeared in wages.  Workers saw an average gain in their hourly paychecks of 1.8% compared with a year ago.  This was well ahead of the increase in consumer prices estimated at 1.1%.

Business profits have recently been strong and companies have invested actively in computers, software, industrial equipment, and other capital goods.  A sizable amount of this investment has probably been focused on improving productivity, but upswings in capital spending have usually led to upswings in hiring.  The next few months will tell.

By Lynn Reaser


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