Merk Investments: Non-Farm Payrolls July 2008
The July estimate of non-farm payrolls declined for the seventh straight month. The loss of -51K jobs was led by a -46K in the goods producing sector, a -35K drop in the manufacturing sector and a -5K decline in the service sector. Government added 25K jobs for the month. The unemployment rate increased to 5.7% on the back of a -72K decline in the household estimate. In a rare bit of positive news in the labor sector, the BLS revised the previous two monthly estimates upward by a total of -26K. The birth death model saw only 4K jobs created with losses in the manufacturing, trade and financial sector. The only real questionable estimates was in the leisure and hospitality sector which, according to the BLS, saw a net 44K jobs created in July
Although, the headline exceeded market expectations there is little in the data to provide optimism. The continuing upward march of the rate of unemployment reflects the deterioration in the weekly continuing claims series and the increase in part time jobs is a stark reflection of the structural adjustment in the labor sector that will prove quite painful. After seven straight months of outright declines, the service posted its second negative print in the past five months on top of the continued problems in the goods producing sector. With the economy looking to tread water, if not outright contract, over the next few quarters, we expect the labor market to remain quite weak for the foreseeable future. In our estimation the labor market should continue to shed jobs at a rate between 80K-110K throughout the remainder of the year and well into 2009, with risk to the downside.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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