July 2011 BLS Employment Better – But Still Not Good

The BLS employment situation for July 2011 headlines report non-farm employment growth of 117,000 and unemployment down slightly at 9.1%.

The BLS’s headline number includes government non-farm employment, and excluding the government sector, BLS private non-farm employment grew 154,000 vs 114,000 for ADP.  Employment is one case where there are multiple data sources we can use to validate what we are being reported – ADP’s employment data was released Wednesday (analysis here).  

While everyone is running around thinking the employment growth, while not good, at least is not terrible.  I again point out that this growth is produced by an algorithm.  Seasonally adjusted data spreads growth over the entire year.  Employment does not really grow in the second half of the year – and the BLS non-farm private non-seasonally adjusted payrolls actually fell 4,000 in July.

I repeat my advisory on BLS vs ADP data:

Econintersect believes the simplistic sampling extrapolation technique of ADP yields a far better picture of the employment situation than the complicated, convoluted Bureau of Labor Statistics (BLS) methodology.

Because of the differences in methodology, many pundits ignore the ADP numbers – while waiting for the BLS numbers.  Although there can be a low correlation in a particular month, the different methodologies tend to balance out, and the correlations are excellent outside of the data turning points.  We are now 16 months past the post recession turning point in employment.

Looking below the headlines:

  • In the latest BLS report employment-population ratio fell from a upwardly revised 58.2%  t0 58.1% – and the labor force participation rate fell slightly from 64.1% to 63.9%).  These ratios tell you that the population or workforce without a job worsened by 300,000.
  • Econintersect does not like the BLS methodology of determining unemployment – only participation rates or employment-populations ratios tell you what is really going on with unemployment.  But for those who like to read this the headline U-3 unemployment rate fell from 9.2% to 9.1%.
  • The U-6 “all in” unemployment rate (including those working part time who want a full time job) fell from 16.2% to 16.1%
  • Average hours worked remain unchanged compared to June’s downwardly revised 34.3.  A rising number indicates an expanding economy.
  • Government employment contracted 37,000 with the Federal Government expanding 2,000 – while state governments contracted 23,000 and local governments contracting 16,000.
  • The big contributors to employment growth this month were professional and business services (34,000) and education and health (38,000).  Education by itself was the headwind, losing 17,400 jobs.  In general, the growth was moderate across all sectors.
  • Economic markers used by Econintersect to benchmark economic growth were mediocre.  The transport sector employment was up 0.1% over June.  The support services industry (including temporary help) was up 0.2% over June.  Econintersect believes the transport sector is a forward indicator so this implies future lack of jobs growth.  Others look at temporary help as a forward indicator, and this also is weak.
  • Manufacturing grew 24,000 versus a gain of 6,000 last month..
  • The unemployment rate for people between 20 and 24 fell from 14.7% to 14.5%.  Econintersect posted an analysis on university graduate unemployment which is worth a read (analysis here).
  • Average hourly earnings up-ticked slightly from and upwardly revised$19.44 to $19.52.

Please refer to July 2011 ADP Employment Data Shows Continued Degradation for the statement outplacement agency Challenger expressing concern over the burst of recent job cuts.

Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg, issued the following statement:

“For the small-business community, the employment picture remained bleak throughout July. With major hiring trends basically unchanged from June, current conditions contradict the idiom that ‘no news is good news.’ Good news is not what we have to report.

“Last month, 12 percent (seasonally adjusted) of the owners added jobs, but 14 percent reduced employment, leaving us with a net negative 2 percent of firms adding jobs in July. The remaining 74 percent of owners made no net change in employment, suggesting that the majority of firms are holding steady, but not planning to grow any time soon. While an improvement from June –when a net negative 7 percent of firms added new jobs—job creation still remains solidly negative.  Twelve percent (seasonally adjusted) reported unfilled job openings, a disappointing 3 point decline from June.

“Small-business plans to hire showed a tiny burst of optimism in June, but it appears short-lived as July numbers were on the wane. Over the next three months, only 10 percent plan to increase employment (down 1 point), and 11 percent plan to reduce their workforce (up 4 points), yielding a seasonally adjusted net 2 percent of owners planning to create new jobs, down 1 point from June.

“The poor recovery in the jobs numbers is a result of very low housing starts activity and lagging expenditures on ‘services’, both labor intensive industries dominated by small firms. Housing starts show little hope for much job creation in construction in the near future and the most recent reports on consumer spending show continued weakness, with retail sales falling. Without sales, there is little reason to expand. And with Washington politics being as they are, there is plenty of reason to remain uncertain.”

In our July 2011 economic forecast, we estimated non-farm payroll growth at 135,000, and the consensus estimate was for a jobs growth of 100,000.  How many jobs businesses create in any one month is not directly dependent on these economic factors, but on individual decisions.  The impact of all the economic factors is averaged out over many months.

Related Articles

July 2011 ADP Employment Data Shows Continued Degradation by Steven Hansen

Dissecting the Employment Numbers by Elliott Morss

Is A Budget Deficit Necessary for an Economy? by Steven Hansen

What’s Up With Employment? by Steven Hansen

JOLTS: Likely Indicating Slowing Employment Growth by Steven Hansen

Is the Stimulus Effecting Unemployment Claims? by Steven Hansen

College Training for Unemployment by Mike Konczal

Economic Damage Storm Track of The Great Recession by Ted Kavadas

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