Inside the jobs report: A ‘dramatic scaling back of firings’

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Some viewpoints on the details of the July employment report, which showed the smallest net loss of jobs since August 2008:

--- David Resler, chief economist, Nomura Securities: ‘Nonfarm payroll employment fell 247,000 in July, much less than the consensus of all forecasters (-325,000) but in line with our estimates (-250,000). Estimates of employment for the two previous months were revised up by a net 43,000. The direction of revisions has proven in the past to be a reinforcing indicator of changing job market conditions. Consequently, the revisions reinforce hopes that the smaller July job loss is signaling a genuine improvement in labor market conditions.

‘The jobs data augment a growing collection of data suggesting that the U.S. economy is emerging from recession. Other details from the employment report provide further support for those hopes. For example, the average workweek rose to 33.1 hours from 33.0, the first increase in hours since August. . . . Job losses decelerated across virtually all sectors.’

--- Bernard Baumohl, chief global economist, Economic Outlook Group: ‘July’s drop in payrolls turned out to be the smallest since August 2008. Some will attribute the improvement last month to government hiring stemming from the Obama stimulus program and not really reflective of a genuine recovery in the private economy. We do not subscribe to that argument. Government employment increased only 7,000 last month. Even so, payrolls in the private business sector showed a drop of 254,000, which also happened to be the least since August of last year. In other words, while federal spending certainly helped the economy, private employers -- many of whom already slashed payrolls to the bone -- are dramatically scaling back firings now that an economic recovery appears to be in progress.

‘In a real surprise, the unemployment rate fell to 9.4% last month, the first drop since April of 2008. [But] we believe this drop in joblessness will prove to be temporary. With the summer in full swing, we assume a larger than usual number of unemployed Americans decided to take a break from job hunting. It’s been a horrible labor market so who could blame them. . . .However, we do expect the headline jobless rate to pick up again in the fall, as people resume their search for employment. That will add to the aggregate number of unemployed and drive the jobless rate higher. Thus our forecast remains that unemployment will surpass 10% in 2010, if not later this year.’

--- Michael Darda, chief economist, MKM Partners: ‘Every employment sector improved in July relative to June with the exception of retail and transportation. Leisure joined healthcare, education and government in adding jobs in July. With [corporate] earnings beating expectations and growth likely to restart in the third quarter, we could actually begin to see some hiring by the fourth quarter.

‘Importantly, the unemployment rate, widely expected to surge above 10%, fell to 9.4% in July from 9.5% in June and thus may have already seen its highs for this cycle. While some will chalk this up to a sharp decline in the labor force, we would point out the 0.2 percentage point drop in the underemployment rate, which includes discouraged, marginally attached and involuntary part-time workers. This was the first decline since November 2007 and the largest fall in 30 months. A massive rally in the corporate debt market, a better tone to corporate earnings, a rise in the manufacturing workweek, a slower rate of decline in temporary help, an outright drop in involuntary part-time workers, and a clear inflection point in jobless claims all suggest the labor market situation is likely to improve as we head further into 2009.’

--- Chris Rupkey, chief financial economist, Bank of Tokyo-Mitsubishi: ‘The economy is at the turning point from the recession as the labor market is starting to heal. It is still a jobless recovery but the V-shaped advocates got a shot in the arm today with the apparent peak in the unemployment rate in June. Unemployment fears have hounded the consumer since the job losses started building after the credit market freeze last fall. If the job losses have halted, and this is a good first step in that direction, consumer spending could lift faster than the market is expecting.

‘At the very least, today’s report is additional evidence that the recession ended in the second quarter and the odds of a 3% real GDP recovery in the second half of 2009 are growing. Today is welcome news as it is likely to chase the doomsayers out of the market. The U.S. economy is now moving down the road to prosperity, and it is not going to be the difficult road to recovery that some saw just a couple of months ago.’

-- Tom Petruno