Today's employment report reinforces two major themes: the economy is contracting, but the depth of contraction is not yet deep. The data are better than feared, as yesterday's jobless claims figure caused many to downgrade their assessment of the labor market. There continue to be problems with adjusting for the amount of net business formation, but even with an adjustment for this glaring fact the figures are not yet as weak as in past recessions. It's more a slow bleed.
The economy lost jobs for a seventh straight month, shedding 51k jobs for a second month and bringing the average size of job losses for the seven months to 66k. These losses are consistent with economic recession but better than past recessions. For example, in the first seven months of the 2001 recession, job losses averaged 145k. In the first seven months of the 1990-1991 recession, job losses averaged 117k (keep in mind the fact that the workforce constantly increases, which should result in larger job losses as time goes on).
The increase in the jobless rate, to 5.7% from 5.6%, will not play well on Main Street and will impact consumer confidence as well as business confidence, as many will fixate on this most-understandable economic statistic. The increase follows a large half-point leap in May, which was the largest monthly increase since February 1986.
Minor solace will be had by observations about the wage figure, which increased an as-expected 0.3%. The gain is not large enough to illicit thoughts that wage demands are increasing much as a result of the recent acceleration of inflation.
Continuing to be odd is the government's assumption about the amount of net business formation occurring in the economy, which is represented by the statistics computed using the so-called birth/death model. In July, the Bureau of Labor Statistics added 4k jobs to the tally, 1k more than last July and 46k more than the 5-year average for the July data (January and July historically are two months when the amount of net business formation is negative). The fact that the government is adding in more jobs than in recent years seems odd given the downshifting in growth and in overall job creation. Most absurd is the assumption for net business formation in the construction sector, which resulted in a 1k boost in jobs to the sector compared to assumptions for slight losses on average over the past three years. It is obvious that the construction sector is contracting, yet the government has not yet made this assumption in its estimation of net business formation for the sector.