the July Employment Situation

the report

The Bureau of Labor Statistics released its monthly Employment Situation last Friday, before the start of stock trading in New York.  The report shows the economy added 117,000 new jobs last month, up from the surprisingly low figure of 18,000 new positions tallied in May.

Interest in the report was great enough that the BLS site that publishes it crashed under the weight of the large number of eager clicks.

revisions to prior data

As you probably know, the  monthly “establishment” data that make up  the new jobs figures in the Employment Situation report are revised twice, once each in the two months after their initial announcement. That’s because the firms whose information makes up the report don’t all send it to the BLS in a timely way.

May revisions were negative, reinforcing the gloomy news from the headline number.  June revisions, on the other hand, are positive. 

May employment gains were first reported as +54,000 jobs.  That figure was revised down to +25,000 in the June report, but revised up again to +53,000 this month.  The June figures were upped as well–to +46,000.  Neither change is earth-shattering.  But one of the discouraging aspects of the June report was that not only was the current-month number an ugly one, the revisions were–contrary to our experience for most of the recovery–pointing in a negative direction, as well.  That tendency may be reversing.  We’ll have potentially confirming data next month.

private sector job creation isn’t that bad

True, the figures for the private sector haven’t attained the post recovery highs of earlier this year, when monthly gains were coming in at 200,000+ jobs.  But the (final) results for private sector job additions in May are +99,000 positions, the (one-more-revision-coming) figures for June are +80,000.  The initial tally for Jul is +154,000.

Given the supply chain disruptions after the Fukushima earthquake/tsunamis in Japan and the almost palpable fear during the past couple of months that Washington’s callous power jockeying over the debt ceiling would inflict serious harm on the economy, it’s surprising that businesses hired anyone at all–let alone 50% more people than industry added at this time last year.

governments continue to shed labor

No surprise here, since state and local governments have been struggling for a long while to balance their budgets.

The government job figures in the July report for the months of May-July are -46,000, -34,000 and -37,000.  The May number was originally reported as -29,000; the June one hasn’t changed that much from the original -39,000.  I don’t see a pattern to the revisions that I’d care to bet the farm on, but, if anything, there’s been a mild tendency for them to drift further into the negative column by the time the adjustment period is over.

long-term unemployment continues to be a problem

Again, not new news, although it has become a focus of recent media comment.  This part of the ES report continues to show that the US economy is making almost no progress in whittling down the number of potential workers hurt by recession (unemployed + discouraged workers + involuntary part-timers).  That figure has only dropped from 16.5% of the workforce to 16.1% since last July.

What’s new, I think, is the debate over the debt ceiling.   That made it more apparent that:

–unemployment is nowhere on the radar screens of Washington insiders of all stripes–Democrat or Republican, elected or appointed, and

–Washington has the potential to do a great deal of harm to the economy as actors on both sides of the aisle elbow for electoral advantage.

stock market implications

I see this as a mildly positive Employment Situation report.

It underlines the fact that, although recovery is slow, it is happening.  The 85% or so of the workforce that have jobs are working more, and at higher pay, than a year ago.  At the same time, each monthly report makes it clearer, I think, that the US has a serious structural unemployment problem à la 1980s Europe than we care to recognize.  (What the country needs to do is clear:  financial support and retraining for the unemployed, better education.  Not on Washington’s agenda, though.)

Among other indicators, recent retail sales reflect this fact.  Mid-market and upscale retailers continue to do well; those that focus on below-average earners continue to struggle.

This is a serious social/political problem.  But, taking off my hat as a human being and donning my hat as an investor, I don;t think it needs to be a stock market one.  From an equity strategy point of view, I think today’s situation implies a continuing focus on global firms and on those domestic companies that cater to more affluent customers.