U.S. Payrolls Up, Unemployment Down

Non-farm payrolls rose 146,000 last month following an upwardly revised 104,000 rise in May. While the latest increase disappointed Consensus expectations for a rise of 183,000, it continued the pace of job growth of roughly 1.5% in place for the last year.

The unemployment rate from the household survey fell to its lowest level since September 2001. At 5.0%, the rate reflected a 165,000 (1.8% y/y) rise in employment and a 1,000 (1.2% y/y) rise in the labor force. The labor force participation rate dipped slightly to 66.0% reflecting an increase in the number of dropouts from the force after two months of decline. Growth in dropouts rose, as a result, to 1.3% y/y though that remained down from the high of 3.7% late in 2003.

Factory sector payrolls fell 24,000 and suffered the worst month of job loss since January, led lower by an 18,000 (-2.6% y/y) worker decline in the motor vehicle industry. A 12,000 (-1.6% y/y) decline in nondurable goods reflected widespread industry declines but were notable at textile mills (-6.1% y/y) and in apparel (-10.5% y/y).

Private service producing industries payrolls rose a firm 148,000 (1.9% y/y) last month led by professional & business services, up 56,000 (3.0% y/y), and education & health services, up 38,000 (2.3% y/y).

Construction jobs rose 18,000 (4.1% y/y) and total government employment rose a modest 2,000 (0.8% y/y). Federal government jobs fell 7,000 (-0.7% y/y) but local gov't employment rose 7,000 (1.0% y/y).

The index of aggregate hours worked (employment times hours worked) rose 0.2% (2.6% y/y) and recovered a revised 0.2% decline in May. The level of hours worked in 2Q rose 2.8% (AR) from 1Q05.

Average hourly earnings rose the same 0.2% as during May and those gains were down from 0.3% during the prior two months.

Six months ago, we wrote about labor market conditions in Canada, describing them as a bit shaky after three years of growth. Such hesitancy is still evident in an uneven pattern of employment gains, slow in the first quarter and picking up slightly in the second. Data for June were reported this morning by Statistics Canada. These latest employment increases are sufficient however, to cut the unemployment rate. It reached 6.7% in June, the lowest since June 2000, which in turn was the lowest since March 1976.

Among sectors of the economy, factory employment is continuing an uneven trend. June's modest increase follows a sizable monthly decline in May and the year-on-year performance, at -3.4%, is among the weakest since the recession in the early 1990s. Services are also remarkably sluggish, dragged down – interestingly – by health care and also accommodation and food services. The finance sector and business services, by contrast, are quite strong. Also strong is construction, with a remarkable 12-month increase of 7.6% through June. Persistently low interest rates in Canada, as in the United States, are facilitating considerable building.

The low unemployment rate would be cause for greater enthusiasm, but for slow growth in the labor force. As evident in the table below and in the second graph, the total number of people working or available for work has shown progressive deceleration. Two of the last three months have seen 12-month percentage changes below 1%, the first time since 1996 that even a single month has been that low.