Published: Friday, 7 Aug 2009 | 9:59 AM ET

Text Size

U.S. employers cut 247,000 jobs in July, far less than expected and the least in any month since last August, according to a government report on Friday that provided the clearest evidence yet that the economy was turning around.

CNBC.com

With fewer workers being laid off, the unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, the Labor Department said, the first time the jobless rate had fallen since April 2008.

White House economic adviser Christina Romer said the dip in the unemployment rate in July, while helped by a drop in the labor force, represents a leveling off after months of labor market weakness.

"It is certainly arithmetically why the number went down," she said on Bloomberg television. "Basically, what we're seeing is stability."

The government revised job losses for May and June to show 43,000 fewer jobs lost than previously reported.

Analysts had expected non-farm payrolls to drop 320,000 in July and the unemployment rate to rise to 9.6 percent. The forecast was made earlier this week before other jobs data prompted some economists to lower their estimates for job losses.

"The economy is at the turning point from the recession as the labor market is starting to heal," said Bank of Tokyo-Mitsubishi economist Chris Rupkey. "If the job losses have halted, and this is a good first step in that direction, consumer spending could lift faster than the market is expecting. At the very least, today's report is additional evidence that the recession ended in the second quarter and the odds of a 3% real GDP recovery in the second half of 2009 are growing. Today is welcome news as it is likely to chase the doomsayers out of the market."

While employers cut fewer jobs than forecast in July, unemployment remains stubbornly high, meaning households have less income to spend. This could set the economy for an anemic recovery, analysts say.

Moreover, in July the workforce fell by 422,000, far more than the 155,000 decline in June, suggesting jobless workers may have given up looking for new work.

Since the start of the recession in December 2007, the economy has shed 6.7 million jobs, the department said.

Job losses in July were spread across all sectors in July, but the pace of firings slowed markedly from previous months. Overall, the loss was the smallest since August 2008, a month before the collapse of Lehman Brothers triggered swift, widespread and deep job cutting.

Manufacturing employment fell by 52,000 — the first time since September losses were less than 100,000 — after shrinking by 131,000 in June. This was probably due to the reopening of General Motors and Chrysler assembly plants after bankruptcy closures.

"Because layoffs in auto manufacturing already had been so large, fewer workers than usual were laid off for seasonal shutdowns in July," Labor Commissioner Keith Hall said, adding that the seasonally adjusted gain did not indicate an improvement in the industry.

Payrolls in construction industries slipped 76,000 after falling 86,000, likely reflecting spending on infrastructure projects from the government's $787 billion stimulus package and a modest pickup in ground breaking for new homes.

In the service-providing sector, 119,000 workers were laid off, and the goods-producing industries purged 128,000 positions.

Education and health services continued to add jobs, with payrolls increasing 17,000 in July after rising 37,000 in June.

Government employment increased 7,000 after slipping 48,000 in June.

The closely watched average work week, the total amount of labor input, inched up to 33.1 hours in July after having slipped to 33.0 in June. The average work week in the manufacturing sector rose to 39.8 hours from 39.5 hours in June, the department said.

Complete Politics & Economics Coverage

Average hourly earnings increased to $18.56 in July from $18.53.

Economists were particularly pleased to see that the overall improvement came with little job creation from the government.

At the same time, many economists say the government's massive $789-billion stimulus package is having a demonstrable impact on the economy, creating 200,000 to 250,000 jobs a month.

The positive surprise in July data was accompanied by ones for previous months as well. June payroll losses were revised lower from 467,000 to 443,000, while May's fell from 322,000 to 303,000.

"The direction of revisions has proven in the past to be a reinforcing indicator of changing job market conditions," Normura Securities International said in a note to clients. "Consequently., the revisions reinforce hopes that the smaller July job loss is signaling a genuine improvement in labor market conditions."

Friday's jobs data and other recent economic reports — from housing to autos — prompted some of the more optimistic economists to repeat the claim that the recession may very well be over.

"The jobs turnaround is actually about as rapid as you could hope to see," said Robert Brusca, chief economist at FAO Economics. "The transition from job losses to gains could come as soon as August. Remember historically once you have seen one month’s job increase you are already in recovery."

The fall in the jobless rate will be good news for President Barack Obama, who has seen his standing in public opinion polls slip as Americans fret about the weak economy and high unemployment.

That hasn't been the case with investors, who have pushed stock prices sharply higher in recent weeks after a short-lived, yet much-anticipated correction to the Spring rally. The market had assumed a good news scenario, which will be tested in the weeks and months ahead.

"The critical question going forward is shape, strength and durability of the recovery," says Jim Awad, managing director at money manager Zephyr Management. "After we celebrate the beginning of recovery the markets will sober up as it gauges the critical question I have raised."

Print

Email

Text Size