Recent new that payrolls fell in June here in the U.S. is bad news for the economy, but maybe not as bad as it is being made out by the headlines.
Let’s start with what the numbers are and move on to what they mean.
As with all economic statistics, employment numbers are compiled from numerous sources which provide an inconsistent snapshot of job activity from around the country. These numbers are made usable by applying a consistent mathematical methodology to them. This results in numbers that may or may not be in any way accurate. What makes the statistics relevant and useful is that because they are always calculated in the same manner looking at the numbers relative to previous statistics is a valid way to analyze growth or contraction in employment.
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Total Nonfarm Payroll US Department of Labor
The “employment number” everyone is talking about today is specifically the total nonfarm payroll numbers and is based upon a combination of data gathered from surveying people (the household survey data) and surveying businesses (the establishment survey data). Much like the Nielsen ratings for television, the numbers gleaned from the surveys are then extrapolated to represent the entire country.
What Job Losses Mean For The Economy
The June 2010 total nonfarm payroll declined by 125,000 for June. This is the “bad” news that headlines are shouting from the rooftops. The same report also says that the unemployment rate actually dropped from 9.7 percent to 9.5 percent. This is the “good” news that no one feels like playing up today.
Keep in mind that since today is July 2, that this data is in no way “final” and that the “revised” June payroll numbers will come out later.
So, what do the job losses in June mean for the economic outlook for the second half of 2010? What do they mean for the stock market recovery underway since 2009?
As always, viewing a single number without context is not meaningful. The June payroll numbers are the first to show overall job losses in 2010. That means that either:
- a) The U.S. economy is slowing back down
- b) The U.S. economy is moving sideways
- c) The U.S. economy continues to grow, but at a slow pace
Temporary employees working on the US Census 2010 were finished with their work in June. These employees alone counted for a drop of 225,000 jobs. More importantly, the private-sector actually added 83,00 jobs. This is in no way robust growth, but it is still positive. However, this low-level of growth also means inflation will not increase and the Fed can keep interest rates low.
The economic outlook for the rest of 2010 depends then on two factors. First, is how these numbers hold up when the revised numbers come out later. If the private-sector number remains positive, then that is good news overall. If, however, that number gets revised down and becomes negative, then we have a problem.
The second factor is the July employment numbers. If July also comes in negative, then one cannot help but consider that whatever growth the economy managed to squeeze out on the job front during 2010 is over for now, or at least on pause. If job growth stalls out now, there is nothing to kick it back into gear until the holiday shopping season with a few hundred thousand temporary jobs come back online.