The Employment Situation for July – Not Sinking, Not Swimming


A somewhat disappointing employment report capped a week of economic reports, including GDP from the Commerce Department and monetary policy from the Federal Reserve (GDP/FOMC), that point to an economy treading water. The Bureau of Labor Statistics (BLS) released the Employment Situation report for July. From the establishment survey, total nonfarm payrolls expanded by a lower than expected 162,000, with the private sector adding 161,000 and government adding 1,000. The previous two months were revised downward by a total of 26,000.

From the household survey, the unemployment rate dropped to 7.4% based on a respectable gain of 227,000 persons employed, but also a decline in the labor force of 37,000. On a more positive note, homebuilding payrolls expanded by 6,300 in July pushing the total number of jobs added since the housing recovery gained traction in late 2011 over 100,000.

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To be clear, the employment report isn’t bad, just disappointing. The economy is adding jobs, just slower than would be expected four years into the recovery, and slower than the 200,000+ monthly pace it would take to bring the unemployment rate down at a less gradual (or glacial) pace. The unemployment rate is declining, but at this point in the recovery the labor force should be expanding more rapidly with new and reentrants, and the number employed part-time who would like to work full-time still tops 8 million.

Soft employment combined with a GDP report that had a positive surprise for the second quarter, but lowered growth in the prior three quarters, raises questions about momentum in the second half of the year. Analysts had expected a weak second quarter as the across-the-board spending cuts undermined demand, followed by a rebound in the third and fourth quarters.

This economic picture lowers the probability of an early move by the Fed to taper monetary accommodation but probably doesn’t drastically alter the likelihood of a move before the end of the year. This much uncertainty on all these fronts just isn’t good for business.


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