Wells Fargo Economic Group Reports: Employment: A Surprisingly Decent Nonfarm Job Gain

Nonfarm employment rose 163,000 in July, which was better than expected but still not enough to keep the unemployment rate from rising. The jobless rate rose to 8.3 percent. Total hours worked rose just 0.1 percent.

Slightly Stronger Job Growth But Unemployment Increased

Nonfarm employment rose by 163,000 in July, with fairly broad based gains across most major industries. While the headline number was considerably higher than the consensus estimate of around 100,000 jobs, data for June were revised lower and now show a gain of just 64,000 jobs. Part of July’s upside surprise appears to be due to fewer motor vehicle assembly plant shutdowns than usual, mostly at Japanese­ owned plants that are still making up for production lost following last year’s earthquake and tsunami.

Job growth also appears to have been bolstered in July by seasonal hiring at restaurants. Restaurants and bars added 29,400 jobs in July, following a much smaller gain in June. Hiring also picked up in education and health care, which added 38,000 jobs following an odd 6,000 job loss in June. Most other changes were similar to recent months. Retail trade added 7,000 jobs, financial services and construction were essentially unchanged and government jobs fell by 9,000, the same as in the previous month. One interesting note is that information services added 11,000 jobs in July, mostly at motion picture and sound studios. The increase may be tied to the election campaign, so maybe there is still some stimulus in the pipeline.

Even with the 0.1 percentage point increase in the unemployment rate, this morning’s employment report should go a long way toward soothing fears that the economy is poised to slide back into recession. That said, July’s 163,000 net new nonfarm jobs probably overstate the improvement that actually took place in July. The job gains in motor vehicles and restaurants and bars, for example, were all due to fewer­ than ­usual job cuts in July, which followed smaller­ than­ usual gains in June. The best way to look at the data is to average the first seven months of the year, which shows nonfarm payrolls rising by an average of 151,000 per month, which is a decent pace, but not enough to keep the unemployment rate from rising.

The unemployment rate rose 0.1 percent in July, which was in line with our monthly forecast, which has long had the unemployment rate rising back up to 8.3 percent in the summer. We had expected to see an increase based on issues related to seasonal adjustment, which have tended to understate the unemployment rate from October through March and overstate it from April to June. From a purely technical standpoint, civilian employment fell by 195,000 during July, while the labor force fell by 150,000. The employment­ population ratio fell 0.2 percentage points to 58.4, which matches the low for the year. The median duration of unemployment fell the second straight month, hitting a nearly three-year low of 16.7 weeks. Any cheer over that drop is tempered, however, by the rise in folks dropping out of the workforce, which increased 382,000 over the past two months, more than two thirds of which stated they currently want a job.

 

Nonfarm Employment Change

Change in Employment, In Thousands

 

U.S. Employment by Industry

Year­over­Year Percent Change of 3­M Moving Average

Total Nonfarm Trade, Trans. & Utilities Government Educ. & Health Svcs. Prof. & Bus. Svcs. Leisure & Hospitality Manufacturing Financial Activities Construction Other Services Information

 

Unemployment Rate ­SA vs. NSA

Percent

 

Source: U.S. Department of Labor and Wells Fargo Securities, LLC

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