Friday, July 2, 2010

Nonfarm Payrolls and Backsliding

This morning’s nonfarm payrolls report confirms that the job creation portion of the economy which was strong in March through May has turned negative again, resulting in a net loss of 125,000 jobs in June. On the positive side, the private sector added 83,000 jobs during the month, while the loss of 225,000 temporary census workers was the sole reason for the negative headline number.

There were, however, some ominous signs in the nonfarm payroll data. These included a decline in the average hourly workweek (down 0.1 to 34.1 hours) as well as a decline of $0.02 in average hourly earnings to $22.53.

In addition to capturing the last 11 ½ years of payroll (blue and red columns) and unemployment rate (red and black line) data, the chart below is intended to highlight the perils of overreacting to the last data point. Note that particularly in the early stages of a recovery (i.e., the red box covering June 2002 – August 2003), the data tend to be choppy and any trends short-lived. I expect that the same dynamics are at work in the current environment. Employment is not the only area of concern at the moment. Housing is also suffering from some backsliding this month, as pull forward demand triggered by the government tax incentives is now giving way to several months of slow residual demand.

I am still anticipating a slow growth scenario for the balance of 2010, with economic expansion – and the accompanying data – moving forward in a fashion that will probably resemble the path taken by someone trying to drive a manual transmission vehicle for the first time.

For more on related subjects, readers are encouraged to check out:

[source: Bureau of Labor Statistics]

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