Employment Surprises to Upside; Unemployment Disappoints

Posted by Diane Swonk on August 3, 2012
Payroll employment jumped 163,000 in July, well above the consensus of 95,000. Private sector job growth was even more robust, rising 172,000 during the month. Some of the gain may be attributed to the fact that the auto makers didn’t close their plants for retooling as they usually do in July. Other gains, however, were more encouraging. Leisure and hospitality employment picked up, with gains concentrated in accommodations and eating establishments; jobs in passenger transportation also increased. This is consistent with the Federal Reserve’s Beige Book report, which suggested that people are beginning to take vacations again.
The worst performing sector was government. The U.S. Postal Service saw a drop of more than 3,000 jobs, which should be of no surprise given that the post office can’t fund itself at the moment. At the local level, public school teachers accounted for the bulk of the losses.
All was not great in the report. Hours worked changed very little, while wage gains were almost stagnant. The picture gets even more complicated when one looks at the breakdown of the results of the household survey, which determines the unemployment rate. Individuals (as opposed to establishments surveyed in the payroll survey) reported a drop in both employment (almost 200,000) and an increase in the number of unemployed. This pushed the unemployment rate up a tick to 8.3% in July, despite a slight reduction in the labor force.  Moreover, the shadow unemployment rate rose to 15%, underscoring the underlying pain the economy is still enduring.
Bottom Line: The payroll data was a welcome surprise, but not a game changer, particularly when taken in the context of the household survey. The next series of data is in two weeks when we will receive more information on consumer spending and the housing market.
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