June Jobs Report: the Ugly, the Ugly and the Ugly

If Hollywood were to make a film about the June jobs report, it would be called The Ugly, The Ugly and The Ugly.

Typically, the monthly jobs report contains some good news, some bad news and some ugly news. And optimism had been building over the June figure, in part because alternate methods of measurement had indicated higher jobs growth. TrimTabs earlier this week said its data indicated the economy added 171,000 new jobs in June, while ADP on Thursday suggested 157,000 private-sector jobs had been added in the month. Add in the slight decline in unemployment claims, falling gas taxes and good preliminary news on retail sales, and there was some hope that the soft patch of April and May was over.

This morning’s ugly, ugly, ugly jobs figure throws a large bucket of ice-cold water on that thesis.

The Ugly #1. The headline number showed that a mere 18,000 payroll jobs were added in June. As Barry Ritholtz of the Big Picture frequently points out, when you’re working off a base of 130 million or so, a gain of 18,000 (or a loss of 18,000) is statistically meaningless. The numbers show that the conservative recovery continues, with the private sector adding jobs and the public sector cutting them. The services, mining, and leisure and hospitality sectors all added jobs. In all, the private sector added 54,000 jobs. But government has been shedding jobs consistently for the past year. It did so again in June, slashing 39,000 jobs. Government spending may be higher, but employment at the federal, state and local level is falling.

The Ugly #2. The unemployment rate ticked up to 9.2 percent. Payroll jobs figures are calculated from the establishment survey (calling up companies and asking them how many they employ). The unemployment rate is derived from the BLS’s household survey (calling up people and asking them if they’ve been working). Sometimes the two surveys tell divergent stories. Not this month. The unemployment rose to 9.2 percent. The number would have been worse had the labor force not declined in June by about 250,000 people. Virtually every component of the household survey — the labor force participation rate, the number of people reporting themselves to be employed, the number of people *not* in the labor force — moved in the wrong direction last month.

Ugly #3. The trend is not our friend. The monthly jobs are revised in each of the two months following the original report. And the trend over much of the past year has been for the figures to be revised upward. In hindsight, during this recovery, BLS has tended to discover more jobs. But in June that trend seems to have reversed. Looking back, BLS is now concluding that there were fewer jobs added in previous months than originally thought. April’s figure was revised from a gain of 232,000 to a gain of 217,000, and the May gain of 54,000 was revised to a gain of 25,000. Add it up, and BLS is telling us there are about 44,000 fewer payroll jobs out there than it thought.

This is just one month, and we should be careful not to read too much into a single data point. But this report really stinks. It is a significant problem for President Obama, for any incumbent, for the U.S. stock market and for consumer-based business. The outstanding feature of the past two years has been the big disconnect between the rapid recovery in the capital markets and the much slower recovery in the labor markets. Put another away, companies have shown that they can massively increase profitability without having to add significantly to their payrolls. Part of this is because U.S. companies have proven to be remarkably adept at boosting productivity — doing more with less labor or the same amount of labor. And part of it has to do with the fact that, with each passing month, U.S. companies — especially large ones — are getting a larger share of their sales from overseas. Some of that comes in the form of exports, which helps support employment. But a lot of it comes in the form of sales of goods and services that are produced outside our borders.

Despite the ugly, ugly, ugly jobs figure, the U.S. expansion is still intact. Macroeconomic Advisers is standing by its call that the pace of growth will pick up in the second half of the year. From industrial production to retail sales, there are signs that demand is continuing to grow. At some point, companies will have to break down and hire people in significant numbers. This report suggests we haven’t yet reached that point

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