James Pethokoukis

Politics and policy from inside Washington

4 reasons why the July unemployment report was worse than you think

August 8, 2009

Lots of temporary jobs and discouraged job seekers are the story. From David Rosenberg at Gluskin Sheff on the unemployment report:

1) The auto sector added 28,200 to the industry payroll in July, which was the highest tally in 11 years. To show you just how big that really is, it is a 69% annualized surge. Normally, the industry, which is in secular decline, posts job losses of between 20,000 and 30,000 consistently, so this alone represented roughly a 50,000 swing.

3) As we mentioned, there have been large fluctuations in the federal government payroll too. After hiring a slew of Census workers in the spring, there were 57,000 layoffs in May-June and then we saw in today’s report that 12,000 federal workers were “hired” in July. Again, mathematically, this contributed about 20,000 to today’s headline number. In other words, and we have no intent on raining on anyone’s parade, there was about 100,000 non-recurring payrolls in that top-line figure. It may be dangerous to extrapolate today’s report into a view that we are about to fully turn the corner on the job market front.

3) Yes, the income number was also firm; average weekly earnings popped 0.5%, but again, this reflected the bounce in the auto sector as well as the 10.7% increase in the minimum wage to $7.25 an hour. Again, this is a non-recurring item and does not at all reflect an improvement in underlying income fundamentals in the personal sector. We had a similar bounce in the summer of 2008 when the minimum wage was last boosted.

4) To be sure, the drop in the unemployment rate was a surprise, but it was all due to the slide in the labour force — the employment-to-population ratio gives amore accurate picture of the slack in the labour market and the hidden secret intoday’s report was that this metric slid to a 25-year low of 59.4% from 59.5% inJune and 61.0% at the turn of the year. Of those unemployed, 33.8% of themhave been unemployed now for over 27 weeks — a record amount (was at29.0% in June and was at 17.5% at the start of this recession).

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