Private Sector job creation at a third of where it was in Q1

Nonfarm payrolls fell 131,000 in July as temporary Census workers declined 143,000 and other government employment dropped 59,000. Private payrolls increased 71,000 in July, which was below expectations. In addition, private payrolls in the prior two months were downwardly revised by 34,000. Over the last three months, private payrolls have risen by an average of only 51,000 per month.


The unemployment rate was unchanged at 9.5% in July as labor force participation declined to 64.6% from 64.7%. Household employment dropped 159,000 in July (this measure of employment has declined by an average of 165,000 per month over the last three months).

BOTTOM LINE

A disappointing employment report that points to a downshifting in the pace of private job creation and a further decline in labor force participation. Although private employment has risen in every month this year to date, the pace has slowed from a relatively solid 154,000 per month average from January–April to a mere 51,000 per month over the last three months. Although the hours worked data continue to outpace employment creation, we have also seen a slowing there from 2.7% in the three-months ended April to 1.8% in the latest three months.

We have seen in time and time again.  This government does not get the keys to successful job creation.  Low regulations, low spending and low taxes encourage private sector growth. 

The news is a little brighter on the labor income front as a combination of a 0.3% increase in hours worked and a 0.2% increase in average hourly earnings points to a solid gain in labor income in July. Also good news was the pickup in employment in manufacturing and the solid increase in hours worked in the sector, which points to a respectable increase in manufactured output in the month. This report sets the stage for a contentious debate about whether to expand the QE program at the Fed but we think that such a move would achieve little (see yesterday’s report The Fed Should Not Sail the QE2!).

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