August 4, 2012

Mediocre is the New Good: Inside July’s BLS Jobs Report

August 4, 2012

Mediocre is the New Good: Inside July’s BLS Jobs Report

I was tied up Friday, so here’s recap/analysis of Fridays jobs report and rate reaction from me and colleague Dick Lepre. Also adding links at bottom to other important jobs analysis.

Rates rose off record lows Friday after a BLS report showed the U.S. economy added 163k non-farm payrolls in July. This isn’t a strong number but it exceeded expectations of 100k and broke a four month streak of much weaker results. June was revised down from 80k to 64k, and May was revised up from 77k to 87k.

This non-farm payrolls figure is from the ‘Establishment Survey’ component of the jobs report which doesn’t count actual people, but rather counts how many companies opened or closed, then uses that data to estimate the number of jobs gained or lost.

Unemployment rose slightly from 8.2% to 8.3% according to a different component of the jobs report called the ‘Household Survey’ which counts people—12.8 million are unemployed. But a more bleak stat that doesn’t make headlines is that another 8.2m are working part time because they had hours cut or can’t find full time work.

Rates rise when mortgage bonds (MBS) sell off, and this is what happened Friday because of this jobs news plus some less reported news of critical groundwork being laid to help Europe’s debt crisis.

The Fannie Mae 3.5% and 3.0% coupons—key benchmarks lenders use to price consumer rates—were down 28 and 47 basis points respectively. As a result, rates closed the week about .125% higher.



Friday’s BLS Employment Situation report shows that the civilian noninstitutional adult population increased by 199,000 in July. The percentage of the population who participate in the labor force was 63.7%. We needed 126,700 more jobs in July to keep the labor participation rate the same. We got 163,000. Equities are rallying and Treasuries are selling because we have a mediocre BLS Report rather than a terrible one. Think about that: 36,300 more real (population adjusted) jobs and the Dow is up 240 as I write this sentence.  Equities are rallying because the previous 4 BLS reports were terrible.  This one is mediocre.

Keep in mind that there are two BLS Surveys: the Establishment and the Household.

The Establishment surveys about 141,000 businesses and government agencies, representing approximately 486,000 individual worksites. It is taken each month during the week which includes the 12th of the month. The Household Survey is a survey of households taken each month during the week which included the 12th of the month. It is a survey of 60,000 households.

Each item below is suffixed with (H) if it is from the Household Survey and (E) if it is from the Establishment Survey and (B) if it combines the two.

– Headline Nonfarm jobs was +163,000. (E)
– Unemployment Rate was 8.3% up from 8.2% in June 2012 (H)
– Average hourly earnings was $23.52 up from $23.50 in June 2012 (E)
– Average work week was 34.5 hours same as June 2012 (E)
– Private jobs were +172,000. Government jobs were -9,000 (E)

Reading beneath the surface:

-Good producing jobs were +24,000. The three previous months were +13,000, -15,000 and +22,000. (E)

-The size of the civilian labor force fell from 155,163,000 to 155,013,000 a decrease of 150,000. (H)

-The labor participation rate (percent of adult non-institutionalized population who are part of the labor force) was 63.7% down from 63.8% in June. It was 64.0% a year ago. (H) This, not the unemployment rate, is the number which should get everyone’s attention. Some of this is structural and some is cyclical.

– the size of the civilian noninstitutional population fell by 150,000 in June. With a labor participation rate of 63.7% 96,500 more jobs were necessary to keep pace with population growth. We had 66,500 more jobs added than that. (H) Real (population growth adjusted) jobs growth has averaged 10,000/month for the past 12 months.

According to the 4 week moving average of Initial Jobless Claims, 1,462,000 people lost their jobs in the last 4 weeks. That normalizes to 1,583,800 lost jobs in a calendar month (there are about 13 4 week periods in a 12 month year.) This is up from the previous month’s 1,543,000 lost jobs/month.

The labor market is extremely dynamic. The number of people moving in an out of it each month is almost 100 times as large as the net change in jobs. Each month we try to look here at the dynamics of this market.

If 1,583,800 people lost their jobs last month and we gained 163,000 jobs, how did that happen? The answers are in the Household Survey.

In July 2012 BLS measured 4 sets of people entering or leaving the jobs market:

– Job losers and persons who completed temporary jobs was 7,123,000 down 84,000 from June’s Job Losers and down 1,026,000 from July 2011. (H)

-Job leavers was 936,000. This includes anyone who retired or voluntarily left working. This was down 84,000 from previous month and down 1,023,000 from July 2011.(H)

-Reentrants was 3,380,000. Reentrants are people who were looking for a job a found one. This was +153,000 from previous month and -64,000 from July 2011.(H)

-New entrants were 1,311,000. These are unemployed persons who never worked before and who are entering the labor force for the first time. This was -20,000 from previous month and +26,000 from June 2011.

The presentation of the total change in jobs is like looking at the final score of a game. The details tell the story:

– 163,000 more people are working

– 150,000 fewer people are in the civilian labor force

– 84,000 fewer people lost their jobs

– 58,000 fewer people left their jobs

– 153,000 more reentrants obtained jobs.

This month’s reports may sound confusing on the surface. More people are working, the Civilian labor force was down by 150,000 but the unemployment rate went up. Sounds strange but the unemployment rate is the number of people from the Household Survey who say they are unemployed (12,794,000) divided by the Civilian Labor Force (155,013,000) or 8.253% which was rounded up to 8.3%.

Further Reference:
Is July Jobs Report Completely Bogus? (Jim Pethokoukis)

Another Fairly Weak Jobs Report (CalculatedRisk)

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