MacroScope

U.S. employment less awful than expected

August 5, 2011

It probably does not offer much comfort to the more than 14 million Americans who are unemployed. But for financial markets still smarting from a Black Thursday felt around the world, the mediocre gain of 117,000 jobs prompted a sigh of relief. Many analysts have begun to worry that the United States might be slipping into recession. So the July figures, accompanied by upward revisions to prior months, came as a welcome respite from bad news.

Still, the increase was meager relative to 7 million job shortfall the country is still facing following a deep recession. Even that figure is an underestimate, since it excludes population growth over the last few years.

Tony Crescenzi, portfolio manager at the Newport, California-based mega bond fund PIMCO, was remarkably downbeat about the numbers:

As much as investors will be relieved by today’s employment report, it is at best a coincident indicator and is therefore dated, because the fight over the debt ceiling created a new climate filled with uncertainty and anxiety that will cause businesses to change their clothes, so to speak, and either reduce hiring, freeze hiring, or cut payrolls. Keep in mind also that the survey period for the July payroll report ended in the week ended July 16th, which was well before anxieties grew.

The Economic Policy Institute, a liberal think tank in Washington, noted the drop in the jobless rate to 9.1% from 9.2% was actually not a good sign in this particular instance.

The decline in the unemployment rate in July was entirely due to a drop in the labor force, not an increase in the share of workers with jobs.

Still, the immediate risk of another downturn appears to have diminished, even if turbulent European markets continue to pose their own risks for the global financial system. Harm Bandholz, chief U.S. economist at UniCredit Research, wrote:

Today’s employment report should allay the mounting fears that the U.S. economy is heading for another recession. Not only did total and private payrolls rise at the fastest pace in three months, but the numbers for the previous two months were also revised up.

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