A Closer Look at the June Employment Data
Raymond James
By Scott Brown
July 10, 2012
The economy added 391,000 jobs in June – that is, before seasonal adjustment. The adjusted figure, up 80,000, was less than expected, but it wasn’t a huge miss relative to the median forecast (+100,000), so the stock market reaction to the headline figure seemed somewhat surprising. Payroll growth in the second quarter (a 75,000 average monthly gain) was as weak as the first quarter was strong (payrolls averaged +226,000 per month in 1Q12) – the average pace for the first half of 2012 was respectable (+150,000 per month). Given the discrepancy in job growth between the first and second quarters, seasonal adjustment may still be an issue. However, there’s concern that a high level of uncertainty in the outlook could undermine hiring in the remainder of the year.
The end of the school year and the start of the summer season cause significant problems for the seasonal adjustment. Prior to seasonal adjustment, we lost 951,000 education jobs (public and private) in June (vs. -858,000 in June 2011). Excluding education, the economy added 1.306 million jobs (vs. 1.309 million in June 2011). Note that losses in education will be an even bigger issue in July (we lost 1.4 million education jobs, unadjusted, in July 2011). The seasonal pattern in private sector jobs this year has not been out of line in comparison to that of recent years. The level of unadjusted private-sector payrolls typically flattens in the second half of the year.
The drag from state and local government, which subtracted significantly from overall payroll growth in 2011, appears to be waning. State and local government payrolls rose by 3,000 in June (seasonally adjusted), with education down by 14,200, and up 17,300 otherwise. Still, that followed a 20,000 decline in May (state and local government averaged a 10,000 monthly decline in the quarter, vs. a +3,000 pace in 1Q12). Federal government payrolls fell by 7,000 in June (up just 35,000 since December 2008), mostly in the U.S. Postal Service (-6,200).
The Household Survey data continue to suggest an economy that is growing fast enough to absorb the growth in the working-age population, but not strong enough to make up much of the ground lost in the labor market during the downturn.
There were a number of positive elements in the report. Average weekly hours increased (but note that these figures are often revised). Average hourly earnings and average weekly earnings are now outpacing inflation, which should help support consumer spending growth in the near term. Temp help employment continued to advance (up 10.7% y/y). This is likely a sign that employers remain cautious, but an increase in temp hiring usually precedes an increase in permanent hiring.
In his June 20 press briefing, Chairman Bernanke said that the Fed is “prepared to take further action to promote a stronger recovery and sustained improvement in labor market conditions.” The slower trend in nonfarm payrolls will provide some support for those arguing for more action and the lower inflation outlook could provide some cover to act. Note that QE1 and QE2 were undertaken to address a threat of deflation.
(c) Raymond James
