Job losses slow, unemployment declines

The Labor Department reported a decline of 247,000 in nonfarm payrolls during the month of July, an improvement from a revised job loss total of 443,000 in June, and the unemployment rate fell slightly from 9.5 percent to 9.4 percent. While the headline paints a rosy picture of an improving labor market, the underlying data is skewed to the upside by odd seasonal adjustments in auto manufacturing, so, don't get too excited about a dramatic rebound in employment just yet.

Since many auto industry job cuts were carried out earlier in the year as Chrysler and GM entered and exited bankruptcy, there are fewer job losses during the summer when workers are normally laid off temporarily as factories retool for the new model year. In fact, within the motor vehicles and parts sector, seasonally adjusted payrolls actually increased by 28,000 in July, a figure that is four times higher than the largest previous increase in a data series that goes back almost 20 years.

As shown below, manufacturing payrolls declined by 53,000 on a seasonally adjusted basis, the smallest loss for this category since a year ago in August, however, on an unadjusted basis, manufacturing job losses of 61,000 were the fewest since 1965. Based on the relationship between the adjusted and unadjusted data in recent years, removing these effects would push July job losses to over 300,000.
The decline in July nonfarm payrolls was nonetheless a big improvement over the first half of the year and recent data continues to be revised upward, the initially reported decline of 322,000 in May revised to 303,000 and the June total from 467,000 to 443,000.

By historical measures, however, job losses remain severe. While this was the best reading for nonfarm payrolls in 11 months, it would rank as the fourth worst month of job losses during the last recession, not far behind the peak decline of 325,000 in nonfarm payrolls following the September 11th attack in 2001.

The unemployment rate dipped slightly to 9.4 percent and the broader measure of "underemployment", including marginally attached workers and involuntary part-time workers, fell from 16.5 percent in June to 16.3 percent in July.

In another indication that the improvement in the headline figures belie the underlying persistent weakness in the labor market, the number of long-term unemployed (those who have been jobless for 27 weeks or more) rose by 584,000 in July, a month when 1 in 3 unemployed persons were jobless for 27 weeks or more.