Another first Friday, another BLS employment report, and the headline news is pretty good: In July the official unemployment rate fell to its lowest level, 7.4%, since 2008. If you were a White House publicist that morning, you could have noted that fact and also that the comprehensive U-6 unemployment rate (which includes discouraged job-seekers and involuntary part-timers) also fell, from 14.3% to 14.0%. And then you could have taken the rest of the day off.
The improvement in the U-6 unemployment rate was not enough to cancel out the previous month’s 0.5% point jump. The U-6 rate was below 14% in March, April, and May. The improvement in the official (U-3) rate was exactly counterbalanced by an 0.1% point drop in the labor force participation rate (to 63.4%). The employment/population ratio was unchanged (at 58.7% for all adults, and 75.9% for prime-age (25-54) year-old adults). The decline in participation defies easy explanation, as it involves three distinct subgroups — adult white males, white teenagers, and adult black females — but not others. (A notable recent trend, by the way, is for fewer people, especially young women, to not enter the work force.)
The unemployment rates come from the BLS’s survey of households. The BLS’s other survey, of employers (the “payroll survey”), is disappointing relative to the previous month’s. June’s report showed the economy with net job growth of 195,000, plus upward revisions of 70,000 jobs to the previous two months. July’s report has net job growth of 162,000, and downward revisions of 26,000 to the previous two months. At this month’s pace, it would take us a year longer to get back to 6% unemployment than at last month’s pace (using the handy Jobs Calculator of the Atlanta Fed).
The stock and bond markets seem to have gotten this report about right. The stock market barely budged, and the 10-year Treasury bond rate actually fell somewhat, from 2.72% to 2.60%, despite the improvement in the official unemployment rate. Both markets watch the employment reports with an eye toward the Fed’s next move on interest rates and “quantitative easing” (“QE”; special purchases of long-term bonds and mortgage-backed securities), all the more so after the Fed recently announced that it would start “tapering” off QE when unemployment falls to about 7.0% and start raising its key interest rate when unemployment falls to about 6.5%. While we’re a notch closer to those rates now, the trend does not look good. Treading water is about all this labor market is doing, and the markets seem to get that.