Parts of July Employment Report Signal Recession
The U.S. economy shed jobs for seven straight months through July, something that has happened only eight other times since the end of the World War Two. Every other instance occurred during a recession.
While the overall loss of 51,000 jobs reported in the U.S. unemployment report was not as gruesome as many on Wall Street had feared, the underlying data shows patterns consistent with previous periods of economic contraction.
"After the November elections, the National Bureau of Economic Research will tell us what we ... already know — the U.S. economy currently is in a recession," said Paul Kasriel, director of economic research at Northern Trust in Chicago.
Keith Hall, the head of the U.S. Bureau of Labor Statistics, said the jobs report alone did not prove a recession, but acknowledged that in the last two such periods, there were eight months in a row of job losses.
What makes the data somewhat perplexing is that it does not match up with some other indicators. Just 90 minutes after the Labor Department issued the employment figures, a separate report from the Institute of Supply Management indicated growth in manufacturing jobs for the first time since October.
The ISM employment index jumped to 51.9 in July from 43.7 in June. A reading above 50 indicates expansion. That contrasts with the Labor Department's report showing 35,000 factory jobs lost in July.
Other figures in the jobs report also looked worrisome.
In addition to the seven-month streak of declines, the data showed the range of industries losing jobs was broadening. Only 41.2 percent of industries reported payroll gains for July, the lowest since August 2003, which was during the so-called jobless recovery that followed the 2001 recession.
"The job market may not be shrinking by a rapid pace, but the deterioration is slow and steady, consistent with an economy that is in a slow-moving recession," said Jennifer Lee, an economist with BMO Capital Markets.
The unemployment rate, which spiked to 5.7 percent from 5.5 percent a month earlier, is up a full percentage point from a year ago. The number of people working part-time because of economic reasons has risen nearly 1.4 million over the year.
"An alternative measure of the unemployment rate which counts these part-time workers as underutilized labor stands at 10.3 percent, near the high reached after the last downturn," JPMorgan economist Michael Feroli noted.
Northern Trust's Kasriel found another recession signal in an index that measures total work effort — both the number of workers plus their hours worked. That fell 1.73 percent over the past year, he said.
"I do not see any other time since the mid-1960s when the year-over-year change in the index of aggregate hours has gone from a positive reading to down minus 1.73 percent and the economy was not in a recession," he said.
"Perhaps things are different this time, but I would bet Ben Stein's money that they are not different," Kasriel added in a reference to the well-known economist and commentator who has been bullish on the U.S. economy.