The Labor Market Picture: Payroll Employment Up, Household Employment Down, the Unemployment Rate Up, and Average Hourly Earnings Decelerating

On Friday morning, the Labor Department released their initial payroll estimate of employment growth for the month of July, coming in at a seasonally adjusted increase of around 163,000 as compared to the previous month’s revised 64,000.  Also reported, and based off of a different survey, were the household employment numbers.  These numbers indicated an employment decline of 195,000 and an increase in the unemployment rate to 8.3 percent.

The Labor Market through July: Detailed Analysis

On the whole, what are the top 5 things the market learned from the employment report today (ranked in order of importance, i.e. 1 is the most important)?

5.  The July numbers were more favorable towards less expensive workers.

Overall, the recovery has been felt the most by individuals that chose to forgo higher education and instead spend their time contributing to the economy (second graph).  The past three months has seen a reversal of that trend, with individuals holding Bachelors degrees or higher seeing the largest decrease in employment.  The group as a whole (yellow bars in the chart) is down 330,000 since April 2012.  This downturn for individuals with a higher education is partly due to the drop in government employment.  Also contributing towards the group’s troubles is a shift towards cheaper workers able to do just as good of a job.  Contrary to prior generations, younger generations probably ought to think about their relative worth in the marketplace before and after a college education.  We’re not in the golden age of education anymore (1950 – 2000).

 4.  Productive industries add jobs and the government is actually doing something useful for the long run competitive position of the workforce. The interactive chart below shows the change in employment by industry from January 2011 to July 2012.  Overall, according to the BLS’s employer survey, companies added 172,000 jobs in July while governments eliminated 9,000.  Is it a good sign that governments are eliminating jobs?  The political question largely depends how useful auditors, regulators, monitors, and other bureaucratic jobs are.  My guess is that the government spending reductions are “good” cuts and will improve the U.S.’s long term economic outlook.

 3.  Average hourly earnings decelerate.  On the whole, average hourly earnings increased from $23.50 per hour to $23.52 per hour.  The minor, and statistically insignificant, increase represents a deceleration to 0.08 percent from 0.30 percent is a sign that the labor market continues to be a weak spot in the teetering economy.


The Labor Market through July: Detailed Analysis


2.  Unemployment rate ticks up.  Because more individuals entered the labor force than those getting a job, the unemployment rate rose from 8.2 percent in June to 8.3 percent in July.  The 8.3 percent rate is 0.2 percent above the recovery’s low of 8.1 percent in May 2012.  America’s European-like unemployment rate (not a European recession-like unemployment rate) is a large concern for those worried about the free floating structure of the American workplace.  In addition to the unemployed, professional forecaster are wondering whether there’s been a permanent shift in the number of American’s wanting to work, as is shown by the drop in the percentage of working age individuals with a job.

  1. Is the divergence between the employer and household survey an issue?  The number that has caught the headlines is the employer survey, which reported a seasonally adjusted increase in employment of 163,000.  The household survey, on the other hand, reported a seasonally adjusted decrease of 195,000.  Labor market watchers generally consider the employer survey to be more accurate in an upturn and the household survey as the more reliable one in a downturn.  One thing is pretty certain: a decline in the household survey doesn’t necessarily mean the employer survey will eventually follow, but it does usually mean the employer survey will report decelerating growth rates in the coming months.  This is part of the reason good professional forecaster are not revising their monthly estimates by very much.

Overall, the BLS’s labor market report was generally “ok”, although, there are still lots of individuals asking the “why me” labor market question.