Friday, August 2, 2013

July employment report: almost everything except the headlines stunk; warning flag for 2014

- by New Deal democrat

The headline report for July 2013 employment is that 162,000 jobs were added, and the unemployment rate declined to 7.4%. Don't be deluded. Almost every other indicator in this report was poor. And the unemployment rate is a lagging indicator. Let's examine the carnage.

First, let's 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. Most of these were negative.
  • the average manufacturing workweek declined 0.2 hours from 40.9 hours to 40.7 hours. This is one of the 10 components of the LEI and will affect that number negatively.

  • construction jobs declined by -6,000, .

  • manufacturing jobs rose for the for the first time in 5 months in a row, up 6000.

  • temporary jobs - a leading indicator for jobs overall - increased by 7700.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - declined by 129,000, and is about 125,000 off its lows.

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 declined 0.1 to 33.6 hours.

  • Overtime hours were down -0.2 to 3.2 hours.

  • the index of aggregate hours worked in the economy declined from last month's level of 98.6 (revised down to 98.5) to 98.4.

  • The broad U-6 unemployment rate, that includes discouraged workers declined from 14.3% to 14.0%, but is still above the sub-14% readings of this spring. The workforce declined 37,000. Part time jobs grew by 19,000.
Other news included:
  • the alternate jobs number contained in the more volatile household survey showed an increase of 227,000 jobs.

  • Combined revisions to the May and June reports totalled a loss of -26,000 jobs, with the reports now showing +176,000 and +188,000 jobs, respectively. Downward revisions are not a good sign, although this is only one month.

  • average hourly earnings decreased from $24.00 (revised down from $24.01 to $13.98. This is going to be worse, on the order of -0.3% in real terms, given my prediction for a June CPI increase of +0.2%. The YoY change decreased from +2.2% to +1.9%, meaning that YoY average real wages have probably decreased slightly, the first time that has been the case since winter.
  • the employment to population ratio was moribund at 58.7%. The labor force participation rate actually declined 0.1% to 63.4%

The internals in this report almost all were poor. The workweek declined. Average wages declined. Aggregate hours declined. May and June were revised downward. The participation rate is still barely above its post-recession low.

It wasn't all bad, as manufacturing jobs increased slightly as did the number of recently laid off workers. Temp jobs are still a positive.

Still, after the recent marked deceleration in the economy as shown by the last three quarters of GDP reports, and with three of the four long leading indicators having turned negative or neutral, this report adds yet more reason to be concerned about 2014.