Growth in nonfarm payrolls stalls

The government reported this morning that nonfarm payrolls in August were unchanged from the prior month.

That’s right – no change, zero. In the meantime, the private sector added just 17,000 jobs and the unemployment rate held steady at 9.1%, the fifth consecutive month the jobless rate has held above 9.0%.

A more formal look is available at Examiner.



Simply put, fiscal and monetary policy have their limits and we are seeing this play out before our eyes.

The president proposed and passed an$800 billion stimulus package early in his administration.

And the Fed has kept rates at zero for over two years and has pledged to keep rates low for another two years.

It has also pumped over $2 trillion into the economy in what is popularly called QE2.

The end result: very weak economic growth and a stubbornly high unemployment rate.

Euphoria to despair–weak nonfarm payroll growth throws cold water on ADP report

OK.  That might be a bit of hyperbole on my part, but yesterday’s release by ADP showing a 157,000 jump in private-sector payrolls created a fertile climate for bullish sentiment on the Street.

But today’s report by the BLS that the economy added just 18,000 jobs in June, with 57,000 coming from the private sector, suggests the slowdown in the economy continues to severely hamper job creation.  And the reaction on Wall Street has been swift, with stocks taking a tumble, as investors run to Treasuries.

Details and a more formal look are available at Examiner.



Last week I suggested that forecasts calling for a roughly 100,000 rise in nonfarm payrolls may have been a bit too optimistic.

Weekly jobless claims have been holding in an elevated range, and there have been few signs that the economy was set to emerge from its recent soft patch.

Further, businesses have clamped down on hiring amid the slowdown and will likely keep a cautious eye on their markets before bulking up on staff.



Consequently, the nonfarm payroll numbers provided by the government more accurately reflect the recent economic slowdown in my view.

And we are unlikely to see a much-needed acceleration in hiring any time soon.

Slowing economy takes toll on nonfarm payroll growth

The economy managed to create just 54,000 nonfarm payrolls in May, less than half of the scaled-back expectations following Wednesday’s disappointing release by ADP .

The government also reported that the private sector managed to add 83,000 new jobs last month.



The lack of a significant number of new jobs, following over 200,000 private-sector additions in February, March and April, is a reflection of the slowdown in an already fragile and uneven economic recovery.

As I’ve repeated often in my commentaries, weekly jobless claims have jumped and have been holding well above 400,000, and the much slower pace of new jobs should not come as a surprise.



As the chart above reveals, the nasty recession has created a gaping hole in the labor force that is far more severe than we saw in the tough recessions that marked the mid 1970s and early 1980s.

And the shallow and uneven recovery has left many wandering in the unemployment line.



Charts 3 highlights the pace of job creation that followed the end of each of the major recessions over the last five years.



Chart 4 compares job creation during the current economic recovery with those that followed the relatively mild contractions during 1991 and 2001.

Although there has been rising chatter that the current soft patch may turn into something more ominous, the latest look at the service sector by the Institute for Supply Management out today suggests that a new recession is not imminent.

Relatively stable jobless claims, though elevated, are not signaling a new contraction either.

The shrinking labor force and falling labor participation rate

With March’s labor report out tomorrow, a behind the scenes look at the labor force that is measured by the government’s household survey provides us with a different look at what’s happening among job seekers that we don’t traditionally see from a quick glance at nonfarm payrolls and the unemployment rate.

First, a couple of definitions are in order.  Nonfarm payrolls are calculated by the government and are released the first Friday of each month in what is called the Establishment Survey.

The unemployment rate accompanies the nonfarm payroll data but comes from a separate survey called the Household Survey.

As its name suggests, the establishment survey tallies workers and is taken from businesses and local and state governments.  The household survey, however, is a detailed questionnaire aimed at households and tells us who is working, not working and looking for employment, and not working and not looking for a job.



The chart above reveals what has happened over the last decade to the labor force – those who are working full time or part time and those who are actively searching for work but are not working – and employment – those working full or part time.

Note: Those who are retired, under 16, in prison or a nursing home, active duty, in school, or are home  because of family responsibilities are not counted in the above graph and are not in what the government calls the labor force.

The difference between the two lines gives us the number of unemployed.

As an example, the level of employment in February 2011 stood at 139,573, while the number of individuals in the labor force stood at 153,246.

The difference, 13,673, measured those who were unemployed. Divide that into 153,246 and you get the unemployment rate of 8.9%.

Simple enough? Absolutely!

What is not so simple to explain and what has puzzled economists is the steep decline in the labor participation rate, or the portion of the non-institutionalized population 16 or older that is part of the civilian labor force.

Labor Participation Rate

              (Source: BLS)

The worst recession in 70 years has clearly blunted the growth in the labor force, as some have been forced into early retirement, while others have stayed in school amid poor job prospects and still others have returned to school.

And still others, unable to find work after months of fruitless efforts, have temporarily given up the job search.  All of these factors have probably played a large role in muting the rise in the unemployment rate as well as reducing the unemployment rate to a still-high level of just under 9%.

Had the labor force continued its uninterrupted trend over the past decade, the jobless rate would now stand near 12%!

An improving economy should draw some of the discouraged workers back into the workforce, and those who have returned to school or stayed in school will eventually be drawn back into the labor force.

That should put the labor force on an upward track. Further, general population growth should also lend support.

However, recent forecasts by economists of faster labor force growth from discouraged workers returning to the job search have failed to materialize, and a lack of upward movement could present longer-term problems for the U.S. economy.

A view of the labor market from a different perspective

Nonfarm payrolls grew by 192,000 in February, which included a rise of 222,000 in private-sector payrolls.  The household survey, which gives us the unemployment rate, showed that employers added 250,000 net new jobs last month, while Wednesday’s release of the ADP employment report revealed the private sector generated a net gain of 217,000 jobs.

That’s the first time in quite a while that all the surveys lined up, indicating that the improving economic climate is finally starting to generate a reasonable level of new jobs.

Often buried in the government’s release are two pieces of data that view the labor market from a different angle.  First, let’s look at average weekly hours (chart 1).



Interestingly, the number of hours worked each week has held steady at 34.2 hours over seven of the last eight months.  At the beginning of an expansion, most firms are reluctant to hire and encourage current employees to take on added work loads.

But the interruption in the upward trend suggests that employers are beginning to plug some of their open slots from the ranks of the unemployed. It seems less likely that the lack of upward momentum in average hours works is tied to lackluster economic growth given the recent spate of data showing an acceleration in activity.



Average hourly earnings, however, has languished during the recovery (chart 2).

On the one hand, unit labor costs are well under control, and the lack of traction in wages is helping to offset the stiff headwinds caused by rising commodity prices.

In other words, we are unlikely to see a spike in core inflation since labor costs are well under control since the supply of workers available is more than adequate in most industries.

However, the lack of any meaningful increases in wages is very likely dampening the nascent rise in consumer spending.

So while it helps to keep inflation under wraps, it also has the potential to limit gains in the economy.

Nonfarm payrolls are reacting to growing economy

Still a long road ahead

Nonfarm payrolls increased by 192,000 last month, including a relatively healthy 222,000 in the private sector, suggesting that the acceleration in economic activity is finally beginning to spur a spate of new jobs. A more formal look at the report is available in my analysis at Examiner.

Before we start popping the corks on the champagne bottles, it’s important to point out that employment is finally back to where it was when the recession officially ended. So let's not obscure the fact that the road to recovery will be a long one.



Moreover, taking a look at the strong economic recoveries that followed the steep recessions of 1974 and 1982, job growth has lagged in the wake of the current recession amid the uneven and fragile recovery that ensued following the end of the current slump.



But economic activity and job growth are closely correlated (see chart below) and the recent spurt in economic activity is generating employment per various surveys, and further gains in economic activity are likely to translate into an acceleration hiring as anxiety over the durability of the expansion eases.



Of course, this outlook assumes there are not unforeseen shocks that would stifle the expansion.  As I’ve already detailed, $100 per barrel oil will not cause the economy to stall. One reason: the price of natural gas and coal, major forms of energy that heat homes and generate electricity, has been well behaved.

Finally, a quick look at the government’s nonfarm payroll data since the recession began is also encouraging. Private sector payroll growth has been slow to catch fire, but with the exception we saw in January, the direction has been encouraging.



According to the Labor Department, payroll employment has increased by 1.3 million from its low point last February, or an average of 106,000 per month.

Over the same period, private-sector employment rose by 1.5 million, or an average of 127,000 per month.
 
Modest, yes, but not enough to significantly take a bite out of the unemployment rate since economists generally agree that 150,000 new jobs are needed each month in order to handle new entrants into the labor force.

That’s why the puzzling decline of 2.4 million in the labor force over the last two years – likely related to discouraged workers – has played a big role in the falling unemployment rate.

Nonfarm payrolls lag but other measures of employment suggest labor market is healing

The recovery is finally kicking into high gear, as evidenced by much of the economic data out recently – see the latest ISM surveys and falling jobless claims, which I’ll discuss shortly. But the government’s monthly release of nonfarm payrolls has been agonizingly slow to detect that the labor market is benefiting from the improvement in economic activity.

So with the government’s labor report out tomorrow, I wanted to take some time to review what other measures of the job market have been detecting, and much of it has been positive.

As the first chart below reveals, we did see a spike in hiring earlier last year, but that was tied to the temporary jobs generated by the 2010 census, which was then followed by four months job losses as those positions came to an end.



Further, the last three months have been disappointing, despite the drop in the unemployment rate, which is derived from the household survey of families, as opposed to nonfarm payrolls, which comes from the establishment survey of companies.

Private-sector growth, however, has been more consistent but not enough to instill confidence in most job seekers.

Fewer are joining the ranks of the unemployed

Weekly jobless claims is released each week and is one of my favorite economic indicators because of its timeliness and how accurately it measures business confidence.

Falling claims tells us that fewer individuals are entering the ranks of the unemployed, but it does not necessarily suggest that firms are ratcheting up on hiring.



What it does say is that business confidence is improving, as companies choose to hang onto their employees amid an improvement in the business climate.  And an improving business climate is a key part of the hiring equation.

ADP is detecting movement

Moving along, the ADP survey of the private sector, unlike the nonfarm payroll survey, has been detecting job growth.

As evidenced by the chart below, job growth has improved in the private sector in four of the last five months in response to faster economic activity.



Nonetheless, most analysts, economists, investors and politicians want to see a confirmation from government data that a renewed vigor in hiring is at hand.

Meanwhile, the Fed Chief Ben Bernanke said in his semiannual Monetary Policy Report to the Congress on Wednesday that “we do see some grounds for optimism about the job market over the next few quarters,” including as “improvement in firms' hiring plans.”

The ISM is seeing growth

A look at the sub-components of the ISM manufacturing and service surveys does reveal that companies are in the process of ramping up hiring.

In fact, hiring among manufacturers is now at the highest levels since the early 1970s (see last chart) , while service industries, which make up most of the activity in the U.S. economy, have also been showing signs of life in recent months (see chart below). A reading above 50 suggests companies are adding employees.



In a sign that the production side of the U.S. economy is firing on all cylinders, the final chart below, which looks at data going back to 1965, provides indisputable evidence, in my view, that U.S. manufacturers are experiencing hefty increases in demand and are responding with plenty of '”help wanted signs.”



Still, the economy is dominated by the service side so it is encouraging to see the ISM services survey detect a renewed interest in bringing folks aboard.

Looking ahead, tomorrow’s release of nonfarm payrolls is expected to show that the economy generated about 180,000 new jobs. Anything just short of 200,000 would be encouraging, however, it's important to point out that forecasters have been too optimistic in recent months. To be fair, the monthly number is very difficult to pinpoint.

Still, based on the evidence that economic activity is accelerating, the recovery is broadening and surveys of the labor market are pointing in the right direction, it’s only a matter of time before the nonfarm payroll survey reflects what’s going on in the economy in my view.

Employment dependent upon strength of recovery

The economic recovery that officially started back in the summer of 2009 exited a deep and nasty recession with a whimper.

Shell-shocked and recession-weary consumers remained in hibernation for quite a long time while a slow and uneven recovery was fueled by manufacturers who were re-stocking shelves left bare by deep cuts in production and growth in China and emerging markets.

For an economy that is neither manufacturing nor export dependent, it was no surprise that the recovery appeared to be non-existent to the casual observer.



The tide now appears to be shifting in favor of a more robust expansion thanks to an improvement in consumer spending – 70% of GDP – and an acceleration in activity in the broad-based service sector.

Whether its pent up demand from purchases that were put off during the height of the recession and the early stages of the recovery, a gradual improvement in job security or a combination of both, the economic recovery that began in manufacturing is spreading.

From double-dip to rising momentum
Following a lull over the summer, growth resumed in the fall and Q4 data showed a rather impressive jump in activity, as real final sales that were buried in the advanced GDP data grew at the fastest pace since 1984!

And 2011 is off to a fast start as evidenced by strong showings in both manufacturing and service-sector surveys.  With the recovery sending out clear signals that it is broadening, growth is no longer dependent on the whims of the narrow and volatile manufacturing sector, which is greatly increasing the odds that the economy is on a firmer footing and is entering a more self-sustaining phase.

Of course, there are still headwinds to the expansion – one only has to look at the somber tone of the housing market, the lingering debt crisis in Europe and tight credit standards.  Banks, however, are beginning to loosen up a bit, as evidenced by recent data from the Fed showing that businesses loans are starting to percolate.

Job growth – close but yet so far
We’ve already seen some evidence that ADP is detecting action in the labor market, and the employment sub-components of the ISM surveys are revealing a renewed interest in hiring. Moreover, weekly jobless claims are in a downward trend, though the winter weather is playing havoc with near-term releases rendering them nearly useless at the present time.

The cautiously upbeat outlook in the job market shouldn’t come as a surprise since the historical record over the last 30 years (see chart above) shows that there is a clear link between economic growth and job growth.

The difficulty comes in pinpointing when the government’s nonfarm payroll data will begin to reflect the pick up in the economy, as January's 36,000 rise in payrolls was a major disappointment.

Though some made a gallant attempt to put lipstick on that pig, no matter how you try to spin it, 36,000 is still 36,000.

Though we have a long way to go before the economy makes a sizable dent in the unemployment rate, I'm in the camp that believes meaningful job creation is on the horizon. And when it happens, it will catch most analysts by surprise.

Employment–the long road to recovery

The economic recovery officially began in June 2009.  Manufacturing, which was pummeled during the recession, has experienced a strong recovery, and firms involved in the output of goods have added to payrolls.

The 49,000 rise in manufacturing employment in January speaks favorably to the argument that faster growth can and will create jobs.  But manufacturing, which tends to exaggerate upward as well as downward trends in the economy, makes up only a small portion of economic output in the U.S.

The service sector, which makes up a majority of economic activity, has experienced a much slower and uneven expansion, and the fruit of such a recovery has been lackluster job growth.


Note: the fast turnaround seen after month 9 came amid the temporary jobs added for the 2010 census; weakness following week 13 came as the temporary census positions came to an end. Additionally, all annual revisions released in today’s data have been incorporated.

The chart above highlights the uncertainty we’ve been seeing in the labor market, as companies continued to shed workers for nine months after the recession ended. Only in recent months has the sluggish pace of employment growth exceeded the weakness seen following the end of the mild recession of 2001.

Adding to the misery facing many of the unemployed, the level of employment is still not back to where it was when the recession ended let alone anywhere near its former peak!



For comparison purposes, the second chart highlights the much more robust recoveries that followed the steep recessions of 1974-75 and 1981-82 and the subsequent job growth.


Moving back to the present, much of the recent data is suggesting that an acceleration in economic activity that began late last year is continuing into 2011.  And continued growth will eventually encourage employment growth.

The big question is when, and I’m still optimistic that this will occur sooner rather than later.  A look at the latest ISM employment indices reveals that most firms are beginning to create new jobs.



One thing that is certain, the latest employment data will do nothing to discourage the Fed from bumping up interest rates nor encourage the Fed to rein in its plan to buy $600 billion in longer-term Treasuries.

And don’t expect fears of inflation that have been emanating from some corners to take center stage at the central bank.

Commodity prices are at elevated levels, which the Fed acknowledged in its latest statement, but with core inflation below 1% and job growth mostly lackluster, don’t expect any additional warnings on prices, which would likely be interpreted as a signal of an impending shift in policy.

Unemployment – the long hard road to an employment recovery

The unemployment rate is back near 10% and the economy barely created any jobs in November, highlighting the problem the economy faces in generating meaningful gains in employment.

So it comes as no surprise that the Fed has embarked on a new but controversial round of quantitative easing, while politicians in Washington continue to focus on ways to speed up the recovery.

Let’s take a moment then to graphically demonstrate how tough it has been for job seekers and the many who fear that a job loss may come their way.



The chart above looks at employment trends during the latest recession as well as the harsh recessions the economy entered during the mid 1970s and the early 1980s.   The unemployment rate soared in all three recessions, but job losses during the current slump have been about double on a percentage basis.

It also confirms that the uneven economic recovery, beginning in month 19, has failed to make a meaningful dent in the unemployment rate. In fact, the economy has yet to get us back to where we stood when the recession ended (clearly viewable in last chart), let alone coming even close to surpassing the peak level of employment reached when the economy entered the recession.

Jobs following recession’s end
The charts below provides a different angle and focuses on what happened after the recession was officially declared to have ended.

Recapping what was said above, the blue and red lines, which look at the 1974-75 and 1981-82 recessions, reflect a robust recovery in employment that was generated by strong economic rebounds.

But the last three recessions underscore how cautious firms have been in adding staff – blame more modest recoveries (see CHART).



The final chart focuses only on the recoveries from the 1991, 2001 and 2008-09 recessions, providing details that weren't available in the second graph.

Despite the trouble many are facing today trying to find meaningful employment, the recession that marked the start of the last decade, at least on a percentage basis, did the worst job when it came to generating new employment opportunities.  That happened following the extremely mild 2001 recession.



Still, the unemployment rate peaked at under 6.5% during that recession, offsetting some of the sting from that jobless recovery.

Fed policy is not a threat to price stability – at least short term

There are plenty of reasons to be worried that inflation might become a problem down the road, including the Fed’s seemingly unlimited appetite for creating money and buying U.S. Treasuries.

But with the economy slowly emerging from the worst recession in 70 years, still high unemployment and very modest wage gains remain powerful forces that are preventing businesses from enacting all but small price increases at the present time.

Yesterday’s release of the labor report, which also includes a look at wages, provides us with a good opportunity  to evaluate one anti-inflationary force that is still entrenched.

Average hourly earnings barely increased in November, and year-over-year, rose 1.6%versus a 1.7% rise in the prior three months (see chart 1).



As reflected by the chart above, the general downward trend remains intact, but it has eased over the past year.

This simply means that the high rate of unemployment and the very abundant pool of labor allow businesses the luxury of keeping wage increases to a minimum. And many are feeling queasy when it comes to demanding larger raises given the lingering job insecurities that remain.

Consequently, the largest expense for most firms is relatively stable, alleviating the need to boost prices in order to maintain profit margins.

Of course, there are exceptions.

Firms that manufacture goods are feeling the sting from rising commodity prices and are being forced to pass along some of the higher costs.

However, there is plenty of capacity still available and relatively sluggish demand makes it difficult for many to fully pass along higher raw material prices to customers.

If economic growth were to markedly accelerate, and that seems unlikely in the near term, the Fed’s pump priming machine has the potential to ignite broad price hikes throughout the economy.

Disappointing nonfarm payrolls, unemployment rate

The government reported that nonfarm payrolls rose a weak 39,000 in November, far short of forecasts, while the unemployment rate rose from 9.6%, where it had been for three straight months, to 9.8%.

The increase is all the more disappointing given the relatively favorable economic data that has been coming out – please see a more formal look on Examiner.



It’s tough to explain away the lackluster numbers, though some of the sting was softened by an upward revision to September and October of almost 40,000.  And the general trend over the past few months is favorable.

It would be nice to say that the 0.2 percentage point rise in the unemployment rate was attributed to discouraged workers re-entering the labor market, encouraged by improving economic data.

But most of the rise in the unemployment rate occurred amid job losses in the more volatile household survey, which provides the data for the unemployment rate.

Action from Capitol Hill on the way?

If there is a silver lining, weak job growth should encourage stubborn lawmakers who have refused to sign on to at least a temporary extension of the Bush-era tax cuts for all taxpayers to acquiesce.

And it may also bring about an extension in unemployment benefits, which though controversial, do provide spendable dollars to those who are most likely to use the funds for every day needs.

Since much of the recent economic data has been positive, gains in the labor market should eventually be forthcoming.

Weekly hours worked suggest slowly improving labor market, earnings growth still sluggish

Average hourly earnings rose 1.7% in October versus one year ago, holding at the same pace for the third straight month (see chart 1).  Sluggish wage growth is not a surprise given the available supply of labor and the high level of job insecurity that many must grapple with.
 
It is helping to keep inflation in check since labor costs are the largest expense for most businesses.  Without pressure from rising wages, most companies are not being pressed to raise prices. Nor could most make all but the smallest price increases stick in the current environment.

However, the lack of any meaningful wage gains is a major factor holding back consumer spending.



Meanwhile, the small improvement in average weekly hours (see chart 2) and the year long upward trend suggests that the economy and labor market continue to slowly improve.



It’s not a surprise that hiring has lagged the rise in hours worked.  Employers aren't seeing much in they way of new business. And if sales are rising, they would rather have their current staff handle what comes through the door - at least until employers sense the recovery is on a firmer footing.

Growth is the cure for high unemployment

The economy created 151,000 jobs in October while August and September were revised upward by 110,000.  The unemployment rate held steady at 9.6%.


(click chart to enlarge)

As the economy has continued to expand, albeit at a modest pace, the private sector has added jobs for ten consecutive months, including at least 100,000 jobs each month over the last four months.

Still, it takes about 150,000 new jobs each month just to keep the unemployment rate from rising. Consequently, the recent upward trend, though encouraging, suggests that any celebration at this juncture would be premature.

Structural unemployment? No way!
I am not in the camp that believes we are facing structural unemployment, or job seekers that don’t have the required skills to fill open slots. So what's the solution – a faster economic recovery!


(click chart to enlarge)

The chart above goes back to 1981 and highlights the close correlation (0.83 for those who love stats) between economic activity and job growth, signaling that a faster economic recovery would very likely translate into increased hiring by businesses.

As already mentioned, the solution is simple.

But the formula that might create a faster recovery has been elusive and may remain elusive because an economy that is thrown into a recession by a financial crisis does not mend quickly.

Average weekly hours, earnings reflect sluggish job market

Looking at nonfarm payrolls and the unemployment rate are two ways of measuring the health of the labor market. Less noticed but no less important are average weekly hours and average hourly earnings.

During September, average weekly hours were unchanged at 34.2 hours (see chart 1), and average hourly earnings increased by just one cent to $22.67, rising a scant 1.7% from one year ago (see chart 2).



The decline in average hourly earnings versus the period one year ago has slowed, but the lack of any significant hiring and the large pool of labor available are keeping wage increases in check.

Consequently, minor bumps in salary are hampering growth in consumer spending but is one of several factors helping to keep inflation under wraps.



Average weekly hours normally decline during a recession, just as total employment falls, because companies experience falling profits and declining sales.  In other words, firms cut hours because customers spend less money and fewer of them come through the door.

When the economy hits bottom and turns around, companies normally respond by requiring or asking current employees to work longer hours rather than beefing up staff  (chart 2 reflects such a scenario).

Why? Because most businesses don’t want to go on a hiring binge and be forced to lay off staff if the economy sinks back into a recession. Only when the recovery enters a more permanent phase does job creation accelerate. Hence, an increase in payrolls lags behind in a recovery.

This time around has been no exception, especially because growth has been lethargic.  Add uncertainty into the mix and weak consumer confidence and you have the perfect recipe for a jobless recovery.

Unemployment rate unchanged at 9.6%

Nonfarm payrolls fall 95,000, private sector jobs increase

The flagging economy failed to make a dent in the unemployment rate in September, while nonfarm payrolls, which were  heavily influenced by a drop in permanent local government jobs and the continuing loss of temporary 2010 census jobs, fell by 95,000.

The private sector did manage to create 64,000 jobs, well above the ADP report released on Wednesday which reflected a loss of 39,000.



Still, the slowdown in economic activity is being reflected by the near lack of job creation.  More worrisome, nonfarm payrolls have fallen for four-consecutive months, as private companies have been unable to offset the loss in government jobs.

And private sector employment has slowed over the past two months.

A robust recovery will cure what ails the job market, but fiscal policy is being held hostage by the federal deficit and the Federal Reserve is running out of options.

Details and a more formal look at today’s report are available at Examiner.

Nonfarm payrolls dip

Growth in private sector exceeds forecasts

Good news on the hiring front: Nonfarm payrolls fell less than expected, and private sector employment, which has gotten most of the attention lately due to distortions caused by the hiring and laying off of temporary 2010 Census workers, increased by a better-than-expected 67,000.

The unemployment rate ticked up from 9.5% in July to 9.6% in August, as the number of new hires was outpaced by growth in the labor force.

Overall, job growth remains anemic, but very modest hiring suggests that businesses do not believe the economy is about to stall.

Details are available at Examiner.

Challenger reports lowest level of planned layoffs in a decade

The job market has been sending plenty of mixed signals lately, as weekly jobless claims remain stuck at elevated levels, while ADP reported today the first decline in private sector employment since January.

But the global outplacement consultancy Challenger, Gray & Christmas said this morning that planned job cuts announced by employers fell by 17% to 34,768 in August, the lowest level in over a decade.

“To put this in perspective, job cuts never fell to these levels following the
2001 recession; not even when the economy was reaping the rewards of the housing boom. You have to go all the way back to the expansion of the late 1990s and early 2000 to find a similar pace of downsizing,” said Challenger.

“If there is a double-dip recession on the horizon, either companies do not see it or they have no slack in their existing workforces. The recovery may indeed be stalling, but any slowdown is unlikely to lead to a sudden resurgence in mass layoffs. Unfortunately, a slowing recovery could be met with further delays in much-needed hiring,” said Challenger.

Large companies are flush with cash following steep cuts in expenses and likely see less of a need to cut their workforces. But labor market conditions remain tepid, as evidence by the high level of weekly jobless claims, lukewarm consumer confidence and the lack of a significant number of new jobs being created by the economy.

ADP reports drop in employment

First decline since January

Stocks are rallying on upbeat manufacturing data, but the latest survey from ADP suggests that the bump on the road to recovery dulled hiring last month.

The ADP National Employment Report showed that private sector employment fell by 10,000 in August, while July was revised from 42,000 to 37,000.  The report indicated that 30,000 jobs in the service sector were offset by a loss of 40,000 among goods producers, including a 6,000 dip in manufacturing.  Augusts' drop in overall employment is the first decline since January.

Interestingly, the decline in manufacturing contradicts the robust number seen in the ISM survey, which also looked at August and was released today.

Unlike the government’s survey of nonfarm private sector payrolls, which has been more volatile and reflected growth that has exceeded 100,000 during March and April, ADP’s report has been less robust, averaging gains of just 37,000 from February through July.

Although it does get some attention in the financial media and among analysts, the government’s nonfarm payroll report is still the 800 pound gorilla that is the most closely followed and can have a big impact on stocks and bonds when released.

The ADP Employment Report is derived from an anonymous subset of roughly 500,000 U.S. business clients. During the twelve month period through June 2010, this subset averaged over 340,000 U.S. business clients and over 21 million U.S. employees working in all private industrial sectors.

Even if the ADP number is too pessimistic (recent data suggest this is the case) and the economy managed to create a small number of jobs during August, economic growth has been anemic in recent months, preventing the economy from creating a significant number of new jobs.

Census hiring sparks payroll gain

Private sector reflects weakness

On the surface, the economic recovery appears to be creating new jobs, but much of May’s increase of 431,000 came from a 411,000 rise in temporary hiring for the 2010 Census.

Private sector job creation was more robust in April but jobless claims remain elevated, suggesting a reluctance to hire among private employers.

A deeper look at the report is available at Examiner.