The unemployment rate rose to 8.3% in July, but it’s probably the most hopeful jobs report in months.
On Friday the Labor Department reported that 163,000 jobs were created in July, a figure that surprised most economists and outran almost all projections. The unemployment rate rose to 8.3%, but the report included a number of encouraging signs.
First, anytime monthly jobs figures are in the six digits these days, it feels like a reason to rejoice. After what appeared to be the beginning of a recovery earlier this year (much like in 2011), the last several months have seen gains below 100,000, not enough to significantly move the unemployment rate one way or another, or even keep up with population growth. May payroll numbers were revised upward from 77,000 to 87,000 in the July report, while June was revised downward from 80,000 to 64,000. Dismal numbers indeed.
The July jobs gain itself was the strongest in five months and beat out most economists’ projections of around 100,000.
While government is still shedding jobs, everybody else is hiring. The manufacturing sector added 25,000 jobs, the health-care industry added 12,000, and professional and business services gained 49,000, putting private sector payroll gains at a relatively healthy 172,000. Government positions fell 9,000.
Friday’s numbers show a discrepancy between the unemployment rate and the jobs figures, and that’s because the rate measures the number of people looking for a job. Last month there were 260,000 fewer “discouraged workers,” meaning more people attempted to re-enter the labor force by looking for work.
“That’s a big swing,” says Peter Cappelli, professor of management at the University of Pennsylvania’s Wharton School. “It’s a huge number, and that’s good news.”
Another good sign: The number of long-term unemployed dropped by 185,000 between June and July when seasonally adjusted. But it’s still higher than it was just a few months ago and is now at 5,185,000 Americans who have been out of work for 27 weeks or more.
The worrisome news is that the economy is only averaging about 151,000 job gains a month since the beginning of the year, which is basically the same number of average gains in 2011 (153,000). Just to keep up with population growth the economy needs to create about 140,000 jobs a month, Cappelli says, and that’s something that hasn’t been sustainable since the recession hit in 2008-09.
The mixed bag of numbers could give the Federal Reserve another reason to further stimulate the economy, perhaps with another round of quantitative easing. But the Fed isn’t likely to take any action before its policymakers meet in mid-September. The markets were up sharply Friday morning, partly because of the semi-positive jobs news, but also because of the perception that the numbers were not strong enough to dissuade the Fed from further monetary stimulus.
In Washington, the discrepancy in the employment rate and the raw jobs numbers will certainly give both the White House and Republican presidential challenger Mitt Romney fodder for attack. Romney will likely point to the uptick in unemployment as a sign that the economy is heading in the wrong direction, while President Obama will laud the unexpectedly strong payroll numbers.
While there are clearly still troubling signs for the economy in the report, overall it could have been much worse.
“The big story is more the trend than the level,” says Cappelli, comparing July to the previous two months. “Things were headed in the other direction. This is a big move from where we were in June, and it’s across the board.”