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Review of Unemployment Report July 2, 2010

Posted by Larry Doyle on July 2, 2010 9:19 AM |

The release of the Unemployment Report this morning is very much consistent with an economy that is undergoing real structural changes and adjusting to the realities of lessened credit and limited growth. As much as some may like to spin it one way or another, those realities are the simple and straightforward ‘sense on cents’ views as we navigate our economic landscape. I do not envision these realities changing anytime soon.

A quick review:

1. The overall unemployment rate declined from 9.7% to 9.5% while the consensus expectation was for an increase to 9.8%. The underemployment rate declined from 16.6% to 16.5%. Are these positive developments? Nope. Why? The rates dropped as more people, in this case 652k workers, have given up looking for work and have exited the labor force.  

2. Non-farm payrolls declined by 125k jobs versus an expected decline of 130k jobs. In line overall and driven primarily by a decline of 225k census workers, but disappointing from the standpoint that private payrolls only grew by 83k jobs versus an expectation of an increase of 110k. If the economy were truly recovering, it would be experiencing significantly greater private payroll job growth at this stage.

3. The worst part of today’s report is centered in average hourly earnings and average workweek. Average hourly earnings declined by .1% and the average workweek also declined by .1%. These numbers typically do not get sufficient coverage, but they are very telling. What are they saying? No wage pressures whatsoever. In fact, the case for further disinflation is supported by the decline in wages. Additionally, the decline in both the hours worked and wages is a strong indication that future consumer spending will also decline. This reality is consistent with the work I highlighted earlier this week by Rick Davis at Consumer Metrics Institute.

Add it all up and the economy is struggling or, as I would define it, the economy has ‘walking pneumonia.’ Market reactions are muted with most trading desks half staffed and many market participants having already made an early getaway for the holiday weekend.


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