Labor report was positive for the macro-economy
By Uric Dufrene
Sanders Chair in Business
Indiana University Southeast
Is today the beginning of the end? The beginning of the end to dismal economic reports? The Bureau of Labor Statistics released its monthly jobs report this morning, and the news was positive for the macro-economy, and offered a favorable indicator for the Louisville Metro and Kentucky economies.
The nation added 163,000 jobs, surpassing consensus estimates in neighborhood of 100,000. Exceeding the consensus estimate to such an extent is telling. One of the first indicators during the most recent slowdown was economic data coming in under consensus estimates. So, the strength of today’s number, relative to the consensus, is important with regard to the strength of the overall job number.
Important for Kentucky and the Louisville Metro economies were the manufacturing and durable goods numbers. Manufacturing employment increased by 25,000 in July, and 24,000 of this number was due to durable goods. Motor vehicles and parts added 12,800. Because of the reliance on manufacturing and the automotive sector, this has to be viewed favorably for the local economies.
Today’s manufacturing numbers are particularly important because of recent declines in other manufacturing indicators. For example, the most recent Institute for Supply Management (ISM) Index was under 50 for two consecutive months, indicating contraction in manufacturing. The most recent factory orders number declined, and durable goods orders have been weak.
These were not favorable indicators for the Kentucky and Louisville Metro economies because of the relationship between jobs and nation-wide durable goods activity. Indeed, non-farm payrolls in Louisville Metro declined two of the past three months, after registering favorable gains earlier in the year. Kentucky’s most recent job numbers also slowed, with the last number showing a gain of only 700 non-farm payroll jobs. For the prior 6 months, Kentucky’s average monthly gain was 4,400.
The strongest service sector was professional and business services, adding 49,000 jobs, with 14,000 of these jobs occurring in the temporary help services industry. One of the favorable indicators for the overall economy has been the strong growth for Louisville Metro professional and business services. The past quarter however, did show some deceleration from last year, consistent with other indicators that were pointing to a slow-down.
Leisure and hospitality added 27,000 jobs, pointing to favorable growth in this discretionary sector. Some of the consumer-related indicators had been pointing to an overall deceleration in consumer spending. So, the size of this number has to be viewed with some favor.
The bad news in the report came in the household survey component of the report, which includes the unemployment rate and labor force information. With the Dow now up over 200 points for the day, the market is obviously not too concerned about this component of the report. While the unemployment rate does provide some information, underlying payroll growth perhaps is more telling about current and future job growth.
Today’s report revealed that the unemployment rate ticked up to 8.3 percent, up from 8.2 percent the prior month. The labor force declined by 150,000; the number of employed fell by 195,000; and the number of unemployed increased by 45,000. Casting the increase in the unemployment rate aside, the change in the labor force and employment cannot be viewed favorably. Additionally, the employment to population ratio declined by two-tenths of a point, down to 58.4 percent.
While the Dow is currently ignoring some of the fine print in household survey, the report could have been much stronger had we seen gains in both the labor force and employment numbers. Today’s non-farm payroll number was quite strong, but the household component of the survey points to continued challenges in the labor market.
One month is too early to definitely suggest that this is the start of stronger sustained job growth. Paying close attention to weekly unemployment claims will provide key information about the August payroll number, and other indictors in the coming month will provide key information about other underlying fundamentals of the economy.
While we have to wait for more information regarding the overall trajectory of the economy, today’s report was exactly what the Kentucky and Louisville Metro economies needed to hear. After robust first quarter growth, overall job growth had begun to decelerate. If today’s report is the start of stronger national job growth, then our regional economies will soon be moving past the recent soft patch.
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