Jobs Report Confounds in Both Directions, Payrolls Weaker, Unemployment Better
- The July Payroll Employment Survey showed a weaker-than-expected gain of 162,000 jobs.
- The Unemployment Rate for July decreased to 7.4 percent, better than expected.
- Average Weekly Hours ticked down for the month to 34.4. Hourly earnings dipped 2 cents.
- Personal Income for June increased by 0.3 percent, boosted by income in financial assets.
- Personal Consumption Expenditures for June were up 0.5 percent.
As often happens, the official Bureau of Labor Statistics July employment report confounded expectations in both directions. The payroll job gain of 162,000 for the month was weaker than expected given solid Q2 job gains and a strong July ADP employment report. However, the unemployment rate came down more than expected, dropping two tenths to hit 7.4 percent. Average hourly earnings dipped slightly as did the hours of the average workweek. If it were not for the Fed benchmarking against the unemployment rate, today’s report would be regarded as weak. However, the Fed IS setting policy according to the unemployment rate, so the larger-than-expected drop in the unemployment rate to 7.4 percent remains consistent with a mid-September date for the beginning of the “calibration” phase of Fed asset purchases. Today’s mixed report puts even more weight on the August jobs numbers which will be published by the BLS on September 6, 11 days before the start of the September 17/18 FOMC meeting.
Construction employment increased before seasonal adjustment, but not after. Seasonally adjusted construction employment fell by 6,000 in July, consistent with weaker federal spending and the Q2 plateau in private residential construction. Manufacturing employment was up 6,000 for the month with solid gains in motor vehicle and parts. Wholesale trade added 13,700 while retail trade added a sizeable 46,800. Financial services employment increased by a respectable 15,000. Professional and business services gains were decent at 36,000. The weakness in the headline payroll number came from educational and health services, usually a strong gainer, which added just 13,000 jobs in July. Employment in leisure and hospitality was up 23,000, ok for that category. Government employment was up 1,000, with drags in Postal Service and state government employment offset by gains in local government (teachers). So the misses were in construction and Eds/meds. Government was not as big of a drag as expected.
Nominal personal income increased by 0.3 percent in June, boosted by ongoing gains in interest and dividend income. After adjusting for inflation and taxes, real disposable personal income slipped by 0.1 percent in June. Nominal spending was up 0.5 percent as energy prices increased. Real (inflation adjusted) spending was up 0.1 percent. The income and spending data was revised as part of the comprehensive GDP revision that went back to 1929. As a result of the recalculation, the personal saving rate looks better. The June saving rate dipped from 4.6 to 4.4 percent. Prior to the revision the saving rate was in the mid-twos.
Market Reaction: U.S. equity markets opened down. Treasury bond yields are down. NYMEX crude is down to $106.60/barrel. The dollar is down versus the yen and up against the euro.
For a PDF version of this Comerica Economic Alert, click here: Employment 080213.