Updated July Employment Outlook

August 5, 2010

Labor Conditions Likely Worse than Consensus

Timing for Next Phase of Crises Coming into Better Focus


PLEASE NOTE: The next regular Commentary is scheduled for tomorrow, Friday, August 6th, following the release of the July employment and unemployment data.

– Best wishes to all, John Williams

General Outlook is Unchanged, as Timing NarrowsAs speculation begins to mount of renewed economic downturn and of new actions by the Fed to intensify systemic liquidity, as the President’s approval rating (historically a key reflection of confidence in the U.S. dollar) continues to soften, as the U.S. dollar begins to move to the center stage for investors concerned about sovereign solvencies, the timing of the looming U.S. financial Armageddon is coming into better focus, with increasingly high risk of it breaking within the next six months to a year. While the timing is narrowing, the general outlook has not changed, as will be discussed in some detail in tomorrow’s Commentary.

This morning’s brief missive just updates the outlook for the July 2010 payroll employment change and unemployment rate. Any further analysis of the July 30th annual GDP revisions will be included along with the analysis of the labor market conditions and the general review of the broad economic and financial conditions tomorrow.

As noted in the last Commentary, the July labor numbers — due for release on Friday, August 6th — remain a good bet to be more negative than an already-soft consensus. reports that last week’s expectations of a 116,000 decline in monthly payrolls have narrowed to a contraction of 87,000. That number includes layoffs of temporary and intermittent census workers in July, which will be roughly 144,000 (per Census reporting; payroll-survey week includes the 12th of the month), implying an expected monthly gain for nonfarm payrolls at about 57,000, ex-census workers. In June, payrolls declined by 125,000, gaining 100,000 ex-census. "Private sector" data largely are being hyped as surrogates for the ex-census counts, but such ignores a general trend of contraction otherwise in government employment, particularly at the state and local level. Total ex-census includes the changes in other government employment. continues to report a consensus July U.3 unemployment rate at 9.6%, up from June’s 9.5%.   

Increasingly reflecting softening economic activity, along with some reversals of distortions from recent reporting issues, July nonfarm payrolls should show an outright monthly contraction, ex-census workers, with the unemployment rate jumping more than expected, to perhaps 9.7% or 9.8%. A 10.0% unemployment rate is not out of the question, depending on how much catch-up there is reversing prior reporting problems.

Please keep in mind that any monthly change in payrolls ex-census within a range of plus or minus 129,000, or any change in the unemployment rate within plus or minus 0.2 percentage points, is not statistically meaningful at the 95% confidence interval. That means that such a gain or loss is statistically indistinguishable from no change or from a move in the direction opposite from that reported.    

Data from related underlying economic series generally have been flat to slightly positive in reporting of the last week. The Conference Board’s help-wanted advertising (newspapers) continued bottom-bouncing in June (which leads July reporting), holding at 10 for the eighth straight month, while help-wanted advertising (online) in July — which leads August — gained 4.3% for the month. Due to the relative newness of the latter series, it is hard to assess the meaningfulness yet of monthly changes (other factors for example include shifting Internet dynamics). The July online gain followed a monthly gain of 2.6% in June.

Both purchasing managers surveys (manufacturing and non-manufacturing) had somewhat higher readings in July, with the diffusion index (a reading above 50.0 indicates expansion) rising from 57.8 in June to 58.6 in July for manufacturing, and rising from 49.7 in June to 50.9 July. Giving leading relationships to payroll reporting, the numbers relevant here for the July payrolls are the June surveys, which had shown sharp monthly declines in the two employment indices.