The best way to characterize the July U.S. jobs report – a slight disappointment regarding jobs created – but one that neither furthers nor detracts from the market consensus that the Federal Reserve will begin to reduce stimulus in September.
The world’s largest economy created 162,000 jobs in July, the U.S. Department of Labor announced said Friday – slightly less than the 174,000 Bloomberg News consensus estimate.
Moreover, the number of jobs added in May and June were revised downward to 176,000 and 188,000, respectively, reducing job gains for those two moths by 26,000.
“We get an employment picture that reflects an economy stuck in a 2% real growth rut with no real signs within the data to suggest a change anytime,” Steve Blitz, Chief Economist at ITG Research Investment, wrote in a report.
Further, the unemployment rate edged down to 7.4 percent – the lowest rate since December 2008 and below the 7.5 percent economists had forecast.
However, investors should not accept the unemployment rate decline uncritically. A seemingly good number can be deceiving, according to Dan North, Lead Economist at Euler Hermes North America.
“We should not be fooled,” North said. “This number is going down for the wrong reasons. More people are leaving the labor force.”
With the above in mind, one metric that’s certain to concern institutional investors, according to North, is the civilian labor force rate: it decreased by 0.1 percentage point to 63.4 percent in July – well below pre-recession levels. Meanwhile, the employment-population ratio remained unchanged at 58.7 percent.
Further, 11.5 million people remain unemployed, and long-term unemployment was unchanged at 4.2 million.
By sector, the July jobs report was mixed: some clear winners, and others that need considerable improvement. Retail added an impressive 47,000 jobs, and financial services added 15,000 jobs.
In addition, merchandising stores added 9,000 jobs; motor vehicle and parts dealers, gained 6,000, and health and personal care stores added 5,000.
Also, food services and drinking places – within the leisure and hospitality sector – added 38,000 jobs in July and seem to be doing relatively well compared to other sectors. Barack L., owner of Robusta Café in New York City’s Financial District, says that his business is doing as well as it could.
“The main issue for us was Superstorm Sandy,” Barack L said. “I’m a bit disappointed, but it’s getting better. The problem is that I was closed for two months after Sandy and still some people are not back in the neighborhood. I cannot afford to hire more people.”
On the other hand, Jana Kasperkevic, who had been working in the hospitality business for about five years, said that the economy has not impacted their business.
“Hospitality industry is very seasonal and since a lot of the workers view this job as transient, there are a lot of people coming and going,” Kasperkevic said.
Another sign that July’s jobs report was indicative of a job market that still is in the process of healing, according to North, is the quality of jobs created: the bulk of job growth occurred in jobs with low wages in the hospitality or retail trade sectors.
One clear July report bright spot was the manufacturing sector: after five months of relative stagnation, the sector created 6,000 jobs.
“The fact that the jobs reported is adjusted for seasonal variation might have boosted the manufacturing sector,” said Sal Guatieri, Senior Economist at BMO Capital Markets. “The auto makers kept their plants running, the demand was quite good.”
Other sectors like mining and logging, construction, transportation and warehousing, and the public sector showed little job change in July.
Also, the average workweek decreased by 0.1 hour to 34.4 hours and in the manufacturing sector, it decreased by 0.2 hour to 40.6 hours.
Meanwhile, average hourly earnings declined 2 cents to $23.98 in July, but it came after a large 10-cent gain in June.
In short, the consensus regarding the July jobs report was that it should not have a major impact on Federal Reserve Chairman Ben Bernanke’s decision to start decreasing gradually, or “taper” its $85 million per month bond-buying program. July’s jobs report contained job growth, but the growth was lackluster and a disappointment – not enough to change investors’ consensus that the Fed will not taper its bond buying program before September.
“Growth is still growth no matter how anemic, and that is enough for the Fed to end the extraordinary suppression of yields out beyond 5 years of maturity,” Blitz said. “It is not enough growth, nor is it sufficiently chipping into underemployment for the Fed to end zero interest rates at the short end.”