U.S. Payroll Employment DeclineEases While Unemployment Rate Falls

Slack in the labor market developed less rapidly last month. The Bureau of Labor Statistics indicated that nonfarm payrolls fell 247,000 during July after declines during the prior two months that were revised slightly shallower. Expectations for July had been for a deeper 325,000 drop in payrolls and it was the shallowest since August of last year. Nevertheless, so far during this recession employment has fallen by a total of 6.7 million, the record by far for a 19-month period. In percentage terms jobs are down 4.8% since the 2007 peak, also a record. Most recently, the payroll decline moderated to an average 331,000 over the last three months versus a peak three-month rate of 701,000 this past winter.

Another indication of the economy's slower rate of decline was that the unemployment rate slipped m/m for the first time since April of last year. The dip to 9.4% from 9.5% in July compared with expectations for a rise to 9.6%. The rate's cycle low of 4.4% occurred in October 2006. Last month, the dip was due to a sharp 422,000 decline in the labor force (-0.0% y/y) as the number of "discouraged workers" surged. This 106,000 rise in the number of workers who want a job now but stopped looking left the y/y gain at 19.0%. Household sector employment fell 155,000 (-3.8% y/y) which was a moderation from the 323,000-to-1,239,000 monthly declines since last August.

Also from the household survey, the median duration of unemployment slipped m/m to 15.7 weeks but that still was up from 9.8 weeks one year ago. The ranks of the long-term unemployed, however, jumped again m/m and, at 5.0 million, they are more than double one year ago.

From the payroll survey, the moderation in the rate of job loss owed to easier declines in both factory sector and private service payrolls. Manufacturing sector jobs fell 52,000 last month and that was the mildest decline in one year. On a three-month basis, the 110,000 average monthly decline also was nearly half the rate of this past winter. Employment in the private service sector dropped 126,000 last month (-3.2% y/y). Here again the three-month rate of decline of 126,000 was well-reduced from the 393,000 average of this past winter and fall. The moderation is apparent across industries. Job cuts in the construction sector also have moderated, but to a lesser extent. Employment here fell a reduced 76,000 last month but the three-month average rate of decline amounted to a still-strong 73,000 versus the worst of 124,000 this winter.

In the government sector employment was broadly under pressure as tax revenues lag. Government jobs rose by just 7,000 last month (0.1% y/y) after two months of decline. Jobs with the Federal government rose by 12,000 (+2.0% y/y) after two down months. The number of state gov't jobs fell for the second consecutive month (-0.3% y/y) and local gov't payrolls were unchanged (-0.1% y/y. Should the federal government bail out the states? Lessons from past recessions from the Federal Reserve Bank of Chicago can be found here.

The breadth of the cutbacks in employment remained a huge 30.1% amongst industries. That is, however, improved from the worst of this past March. Over a six-month span just 17.3% of firms raised employment which was near the worst. In the factory sector an improved 22.3% of firms raised employment but over a six-month span just 7.2% did.

Average hourly earnings rose 0.2% during July and the three-month change seems to have bottomed at a 1.3% annual rate. That compares to to roughly 4% growth from 2006 to 2008. Earnings in the factory sector rose 0.8% and the three-month growth rate improved to 3.8%. Growth in the durable sector's earnings (NSA) jumped over the last three months but earnings in the private service sector remained under pressure at +1.1% during the last three months.

The figures referenced above are available in Haver's USECON database. Additional detail can be found in the LABOR and in the EMPL databases

Raising automotive fuel efficiency from the Federal Reserve Bank of Chicago can be found here.

The OECD LEIs are now jumpin.’ The rise is strongly accelerating across OECD countries; even Japan whose indicator is still falling is seeing a substantial shift in its negative growth rate to a substantially diminished pace of decline. The detailed progressive growth rates from 12-months to six months to three months show that the acceleration is well in force. The OECD’s preferred reading is on the six month growth rate. The US rate is now flat compared to declining at a 16% pace six months ago. The European index is up at a very strong 6.4% pace after dropping at a 12% rate six months ago. Japan is falling at a 7% rate after dropping at a 22% rate six months ago. What a difference a half year makes.

The United State’s own LEI from the Conference Board usually carves out lower recession lows than the OECD LEI for the US. The Conference Board indicator usually carves out higher highs in the transition to recovery, by a small amount, as well. In this recession however the OECD LEI for the US is much weaker than the low for the Conference Board’s measure based on percentage drops in the respective indices. As a result, while the OECD index has a bigger US turnaround from its low to its present value, the positive reading on the Conference Board LEI is far stronger that the current OECD LEI signal (the OECD measure is flat over six months).

Different measures capture different aspects of the economy’s weakness. Right now both of these measures have the same sort of positive momentum to different degrees but positive momentum nonetheless. It is interesting that the European economies are showing much more momentum in this framework. We will have to keep our eye on the economies and see if European economic performance can live up to the strong positive signal the OECD has for that region.