After a promising start to the year, job numbers were abysmally weak for the second month in a row. The Employment Situation report from the Bureau of Labor Statistics revealed a meager 18,000 increase in total non-farm payroll employment, which comes on the heels of an equally disappointing 25,000 net increase in jobs during May (itself revised down from an initial estimate of +54,000). This is well below the 200,000 plus average rate necessary to support economic growth and drive down the unemployment rate.

Overall there has been a marked deceleration in the rate of employment growth in second quarter 2011, slowing to an average of 86,700 jobs per month for the quarter.  Indeed, this is around half the rate of growth that was observed during the first quarter (+165,700 jobs per month) and also trails the monthly average that occurred during calendar year 2010 (+97,750 jobs per month).

There are virtually no pieces of positive news that can be gleaned from the June employment report.

Private-sector industries added only 57,000 jobs, with moderate gains in leisure and hospitality (+34,000 jobs), healthcare (+13,500) and professional and business services (+12,000); however, notable declines were registered in education (-17,400) and financial services (-15,000). The public sector shed a further 39,000 jobs, with employment down across all levels of government—federal (-14,000), state (-7,000) and local (-18,000).

The unemployment rate edged up to 9.2% in June, with 14.1 million persons unemployed. Since March, the national average unemployment rate has risen 0.4 percentage points and the number of unemployed persons has jumped by 545,000. The participation rate declined to 64.1% and the overall size of the labor force shrunk to 153.4 million due to the departure of 272,000 discouraged workers.  This essentially gave back all of the gain in the labor force from the previous month.

Residential construction employment was down 9,900, with a decrease in both residential specialty trade contractors (-8,400) and residential building jobs (-1,500). The sector remains 1.44 million jobs below the peak in April 2006 (down 42%) and has managed to gain only 11,200 jobs since the trough in October 2010.

Overall, the June employment report was a sobering one. On a positive note, however, the labor market situation is expected to improve during the second half of the year, driven by our projections for above-trend GDP growth in the third quarter and a bounce-back of auto production following the tsunami–related supply-chain disruptions in Japan. We’re forecasting employment growth to average 175,000 jobs per month in the second half of 2011.