Diane Swonk, Chief Economist
September 3, 2010 – 8:35 a.m. CT
Employment Surprises on the Upside, but Only Marginally
Nonfarm payrolls fell by 54,000 during the month of August, with a 114,000 drop in temporary census hires more than accounting for that loss. We also saw a loss in state and local employment. A transfer of more than $20 billion from the federal government, however, helped to dampen the decline in state and local employment by allowing some municipalities to bring back teachers that had been given pink slips at the end of the 2009-10 school year.
On the brighter side, private sector employment actually increased by 67,000 jobs, but the gains were extremely uneven. Construction employment actually increased over the month, which was a surprise given the downdraft that we have seen in the housing sector this summer. A good portion of the "gains" in construction, however, could be attributed to workers who returned from a strike in Illinois. More encouraging was the rise in temporary employment, which when combined with other evidence that large companies are beginning to dip their toe into the pool of hiring, portends a slight pickup in employment this fall.
Moreover, job losses endured during the June-July period were revised down significantly, which is a relief, given the shock those losses were to the system in the first place. On net, it looks like we added an average of a little more than 90,000 jobs per month since the start of the year, which is better than losing jobs, but a far cry from the estimated 150,000 jobs per month that we will need to accommodate workers entering the labor force, let alone the increase in hiring that we will need to absorb all those who have already lost a job.
Indeed, the unemployment rate edged up to 9.6 percent as more workers entered the labor force than could find jobs. The number of workers accepting part-time over full-time work to get a job also increased, which underscores just how painful this recovery remains. Moreover, the unemployment rate is likely to edge higher as hiring continues to fall short of the number of workers entering or re-entering the labor force. More than 42 percent of the unemployed have been unemployed for six months or longer. Indeed, a large percentage of the job losses that we are seeing today occurred during the height of the crisis at the end of 2008 and start of 2009, which is why extensions to unemployment insurance benefits are up more than 60 percent from a year ago.
The Bottom Line: When the bar is low, it isn't hard to exceed it, and our bar on determining whether or not an economic report is "good" has fallen to an extremely low level. That said, we will take what we can get, and today's employment report alleviates the sense that the economy is falling off a cliff, and lessens concerns about a double-dip recession. It will allow the Fed to hold off on making a decision to stimulate further at its September meeting. The recovery is far from strong, however, and the Fed is still expected to get back in the game of large scale asset purchases prior to the end of the year. Fed Chairman Ben Bernanke will corral the cats in what has now become a Lion's Den.
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