Unemployment Rate Surged, Payrolls Down Again

The unemployment rate jumped to 6.4% in June, further than Consensus expectations for a rise to 6.2%. It was the highest rate of unemployment since April 1994. Employment did rise 251,000 (+1.0% y/y) but that gain was outpaced by a 611,000 (+1.5% y/y) worker surge in the labor force.

Nonfarm payrolls fell 30,000 in June versus Consensus expectations for no change. The decline in May payrolls was revised deeper to 70,000 from 17,000 reported last month.

The one month diffusion index for nonfarm payrolls was little changed at 43.3, suggesting poor hiring prospects. The three month diffusion index fell to 43.9. By measuring the breadth of hiring increases, these indexes are leading indicators of job growth.

Where Jobs Fell: The number of factory sector jobs fell 56,000 (-0.4% m/m, -4.2% y/y) and are down 2.2% year to date. The one-month diffusion index for the factory sector rose slightly to 32.1. That is versus 19.0 in February and 9.5 in December 2001. Retail hiring fell 12,800 (-0.6% y/y). Professional & business services jobs fell 3,000 (-0.3% y/y).

Where Jobs Rose: Construction jobs rose 16,000 (1.1% y/y) for the fourth consecutive monthly gain. Jobs in the financial industries rose 9,000 (1.9% y/y for the tenth consecutive monthly gain. Leisure & hospitality jobs rose 22,000 (1.2% y/y). The number of government sector jobs nudged up 1,000 (-0.0% y/y) following three months of decline.

The index of aggregate hours worked (employment times hours worked) was unchanged (-1.7% y/y). Hours worked last quarter fell 0.4% from 1Q.

Over the last ten years there has been a 61% correlation between the quarterly change in aggregate hours worked and real GDP. That correlation is down from 87% in the 1980s due to the recent acceleration in productivity growth.

Average hourly earnings rose 0.2% and in 2Q rose only 0.5%, the slimmest quarterly increase since 1Q 2002.

The nonfarm payroll employment figures are based on reports provided to the US Labor Department by businesses, while the figures from which the unemployment rate is derived are based on a survey of US households.

Employment	June	May	Y/Y	2002	2001	2000
Payroll Employment	-30,000	-70,000	-0.3%	-1.1%	0.0%	2.2%
Manufacturing	-56,000	-44,000	-4.2%	-6.9%	-4.8%	-0.3%
Average Weekly Hours	33.7	33.7	34.0	33.9	34.0	34.3
Average Hourly Earnings	0.2%	0.3%	3.0%	2.9%	3.8%	3.9%
Unemployment Rate	6.4%	6.1%	5.8%	5.8%	4.8%	4.0%

Initial Jobless Insurance Claims Rose
by Tom Moeller July 3, 2003

Initial claims for unemployment insurance rose 21,000 (5.1%) last week to 430,000. The level of claims was higher than Consensus expectations for 413,000. Claims in the prior week were revised up.

The four-week moving average of initial claims fell to 425,000 (+8.4% y/y).

Continuing claims for unemployment insurance rose 0.9% w/w although the prior week's level was revised down.

During the last ten years there has been a 79% (inverse) correlation between the level of initial claims for unemployment insurance and the y/y change in nonfarm payrolls.

The insured rate of unemployment rose to 3.0% from a downwardly revised 2.9% the week prior.

Unemployment Insurance (000s)	6/28/03	6/21/03	Y/Y	2002	2001	2000
Initial Claims	430.0	409.0	10.3%	404.3	406.0	299.7
Continuing Claims	--	3,751	2.4%	3,575	3,022	2,114

ISM Nonmanufacturing Index Up
by Tom Moeller July 3, 2003

The Institute for Supply Management reported that its nonmanufacturing sector business activity index surged to 60.6 last month, the highest level since September 2000. The Consensus expectation was for a much smaller rise to 55.0.

The 6.1 point m/m rise was the sharpest since November 2001.

During the last five years, there has been a 65% correlation between the level of the Business Activity Index from the ISM nonmanufacturing survey and quarterly growth in real GDP in the service sector plus structures.

The seasonally adjusted new orders index rose to 57.5, its highest level since October 2000. The employment index rose to 50.3, only the second month above 50 since early 2001.

Business activity for the nonmanufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.

The seasonally adjusted prices index rose to 51.4, still the second lowest level since March 2002.

ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The nonmanufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.

ISM Nonmanufacturing Survey	June	May	Y/Y	2002	2001	2000
Business Activity Index	60.6	54.5	57.4	55.1	49.0	59.3
Prices Index	51.4	49.6	52.5	53.9	51.6	63.5