Friday, July 6, 2007

Payrolls Increase 132,000

From the BLS:

Nonfarm payroll employment increased by 132,000 in June, and the unemployment rate was unchanged at 4.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment rose in several service-providing industries, while manufacturing employment continued to decline. Average hourly earnings rose by 6 cents, or 0.3 percent, over the month.

However, the BLS revised the two previous reports higher by 75,000.

There are some big areas of concern in this report.

1.) Manufacturing lost 18,000. Most of the manufacturing indicators (such as the ISM and the various regional Federal Reserve reports) have given a positive signal for manufacturing. Yet the sector continues to shed jobs. Part of this is the increased productivity of the sector. However, I have to wonder if there is something else going on as well.

2.) Construction jobs increased 12,000. It appears commercial construction projects are absorbing the loss of jobs in the residential construction area.

3.) Retail lost 24,000 jobs. This is further confirmation of a slowdown in consumer spending. Here is a chart of chained 2000 dollar month over month increases in personal consumption expenditures for the last 7 months. Notice that sales have slowed the last three months.

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4.) Education/health services added 59,000 and leisure/hospitality added 39,000. Neither of these areas are considered high-pay areas. Regarding health services, note where the jobs were created:

Health care employment grew by 30,000 in June, with gains in hospitals (+14,000) and in nursing and residential care facilities (+8,000).

5.) Professional and business services lost 9,000 jobs. The report notes the slowdown in this area:

Professional and business services employment was little changed in June. During the first 6 months of 2007, job growth in the industry averaged 13,000 per month compared with an average of 42,000 per month in the last half of 2006.

Employment growth is one of the bullish arguments for the economy going forward. If the headlines focus only on top-line growth, this report should help although it is not a blockbuster. However, looking at the details a different picture emerges: Slowing retail and professional services growth, the continued decline in manufacturing and a big addition of lower-paying jobs.