The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. Why Investors Care
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Highlights
The run of strong economic data picked up pace Friday. Non-farm payrolls rose a sharp 207,000 in July with upward revisions to June and May totaling a nice 42,000. The Labor Department said hurricanes in the month did not distort the data -- which look strong nearly across the board.
Month-to-month pressures appeared in wages, solid evidence that the jobs market is strengthening. Average hourly earnings rose 0.4% vs. 0.2% in June.
But the average workweek, perhaps distorted by auto retooling, didn't show pressure, unchanged at 33.7 hours.
Service jobs rose 203,000: retail jobs showed soared 49,800 as jobs at vehicle dealers, who were struggling to keep up with the stampede of customers, rose 6,000 to more than reverse a 2,000 decline in the prior month. Construction jobs continued to show strength, up 7,000.
But manufacturing jobs extended their sorry string of disappointment, down 4,000 with auto-related jobs down 11,000. The outlook for manufacturing auto jobs is uncertain given financial troubles at GM and Ford.
Like the establishment survey, data from the household survey were also positive. The labor force grew by a strong 450,000 in the month indicating that discouraged workers continue to re-join the workforce. The Labor Department said there were few drop-outs. The labor force participation rate rose a tenth to 66.1% while the employment-to-population ratio also moved up a tenth to 62.8%. The unemployment rate held steady at 5.0%.
There's little doubt that at least some of the economy's strength is tied to car-maker incentives, including the jobs spike at dealers. Will there be a future payback from the sales boom?
Otherwise July's jobs report offered plenty of answers. The state of the economy is unusually clear: growth is accelerating. That means pressures on wages, on productivity growth and on interest rates. Bonds fell back but not severely in initial reaction to the data. The dollar firmed. Higher interest rates will limit the positive effect on the stock market, which itself firmed through July as corporate profits offered their own confirmation of economic strength.
Nonfarm payroll employment increased 146,000 in June, a solid if unspectacular gain. New jobless claims were significantly lower in July than in June - and this could bode well for payroll growth. The civilian unemployment rate edged down to 5.0 percent in June, its lowest reading since 2001, but many economists are coming to the belief that the low number is understating joblessness.
Nonfarm payrolls Consensus Forecast for July 05: 175,000
Range: 100,000 to 210,000
Unemployment rate Consensus Forecast for July 05: 5.0 percent
Range: 4.9 to 5.1 percent
Average workweek Consensus Forecast for July 05: 33.7 hours
Range: 33.6 to 33.8 hours
Average hourly earnings Consensus Forecast for July 05: 0.3 percent
Range: 0.2 to 0.3 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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