Friday, July 5, 2013

June employment report: coming up roses with one skunk in the garden

- by New Deal democrat

As you probably already know, the headline report is that 195,000 jobs were added in June, and the unemployment rate remained steady at 7.6%. There were big positive revisions to April and May, and an unusually complicated more comprehensive underemployment situation.

As always for me, after the headline the next thing I want to do is look at the more leading numbers in the report which tell us about where the economy is likely to be a few months from now. These were generally positive with one exception.
  • temporary jobs - a leading indicator for jobs overall - increased by 9500.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - declined by 14,000, and is about 225,000 off its lows.

  • the average manufacturing workweek rose 0.1 hour from 40.8 hours to 40.9 hours. This is one of the 10 components of the LEI and will affect that number posivitvely.

  • construction jobs rose +13,000, adding to the evidence that the housing recovery is real.

  • manufacturing jobs, on the other hand, declined for the 4th month in a row, down -6000.

Now here are some of the other important coincident indicators filling out our view of where we are now:
  • The average workweek for all workers was unchanged at 34.5 hours

  • overtime hours were also unchanged at 3.3 hours.

  • the index of aggregate hours worked in the economy rose strongly from last month's level of 98.4, itself revised up 0.1, to 98.6. In terms of hours if not jobs, the economy is almost back to where it was at its pre-recession peak.

  • The broad U-6 unemployment rate, that includes discouraged workers, however, rose strongly from 13.8% to 14.3%. This ia almost certainly because not only did 177,000 people enter or re-enter the workforce, but also because those working part time for economic reasons increased sharply by 322,000.
Other news included:
  • the alternate jobs number contained in the more volatile household survey showed a gain of 177,000 jobs.

  • Combined revisions to the April and May reports totalled +70,000 jobs, with the reports now showing +199,000 and +195,000 jobs, respectively. This happens in expansions and contradicts any theory of recession.

  • average hourly earnings increased $0.10 to $24.01. This 0.4% in real terms is probably unchanged, given my prediction for a June CPI increase of +0.4% as well. The YoY change, however, also rose from +2.0% to +2.2%. The bottom line here is that if gas prices can remain contained, the average American household is probably making at least a little progress.

The June employment report, at bottom, is more of the same that we've had for over three years: positive, and in no way indicating any imminent economic contraction, but simply not good enough. The report was almost uniformly encouraging, with most of the Leading aspects and the internals confirming improvement. The upward revisions to April and May are particularly encouraging, as is the strong news on aggregate hours of work.

The skunk in the garden is the U-6 unemployment rate spike. I hasten to note that U-4 and U-5 improved. Only this most broad measure declined. Part of the unemployment news was paradoxically "good" as more people joined the workforce, and indeed the Employment/Population ratio rose slightly to 58.7%. But the big spike in part time for economic reasons is jarring, especially in juxtaposition to the rest of the report (I'm sure it will be headlined elsewhere that subtracting the increase in part time jobs, the headline number would be negative.) It is at least possible that this is fallout from Obamacare, but it's impossible to tell without a lot more digging.