Payroll Losses Moderate; Unemployment Rate Hits 26-Year High

Job losses moderated in August but the 20th straight monthly decline in payrolls caused the unemployment rate to climb three-tenths to 9.7%, a fresh 26-year high.

The official employment report said the economy shed 217,000 jobs in August, a slightly better figure than the consensus forecast of -225k. Historically that remains an awful print, but the trend has been in the right direction since the labor market lost 741,000 jobs in January.

“The job losses are slowing in typical lagged fashion as the economy emerges from recession,” said Sal Guatieri from BMO Capital Markets. “But they remain sizable, and joblessness continues to mount, which will only make it harder for households to repay debt and build savings, thereby impeding a consumer-led recovery.”

Since the recession began 20 months ago in December 2007, 6.9 million jobs have vanished from the economy.

Revisions to the prior two months were negative, with 49k fewer jobs than previously reported. In June payrolls fell by 463,000 (compared with an original estimate of 443,000), and in July payrolls fell 276,000 (compared with 247,000).

Construction: Where Jobs go to Die

Construction employment declined by 65,000 in August, in line with the trend since May and pushing the recession’s total decline to 1.4 million. Monthly losses had averaged 117,000 in the six-month period from November to April.

In line with the construction spending report last week, the larger share of job losses has shifted from the residential to nonresidential and heavy construction components.

Struggle Continues for Manufacturing, Finance, and Trade

Manufacturing saw 63,000 jobs fall in August, while losses in the financial sector were 28,000 due to declines throughout the industry. Since the recession began 537k finance jobs have been lost, though losses have been moderating in 2009.

Wholesale trade saw employment fall by 17,000 in August. 

Where is the Stability? 

The jobs market in the retail world was little changed in August, as 10,000 jobs were lost following an average of 46,000 from May through August. 

Stability was also seen in transportation, warehousing, and leisure & hospitality.

Where the Jobs are at: Health Care & Government

Labor in the health care sector rose by 28,000 in August, contributing to 544,000 new jobs since the recession began. Employment in hospitals, however, was little changed. Overall, job growth slowed in early 2009 and employment has been flat since May.

Government jobs added 4,000 payrolls in the month, compared with +8,000 in July.

Hours Flat, Wages Up:

The average workweek was unchanged at 33.1 hours, while the average workweek for factory workers was unchanged at 39.8 hours. Meantime, average hourly earnings rose 0.3% (or 6 cents) in the month to $18.65. 

Guatieri called those figures surprising, “given the glut of available workers.” However, hourly earnings are up just 2.6% from last year, “well below 3.8% in August 2008.” 

Other analysts were disappointed by the numbers.

Economists from RDQ said the report highlights the divergence between the ‘haves’ and the ‘have nots’ in this economy. 

“With average hourly earnings rising 0.3% in each of the last two months, labor income is rising at a solid pace for those with jobs while the near 25-week average duration of unemployment underscores how long it takes to find a new job for those who are unemployed.”

Deutsche Bank’s chief US economist Joseph LaVorgna had a different take. He expects the economy to begin adding jobs later this year, but was disappointed by wages and hours because they failed to suggest that businesses were restocking inventories.

“We need to see the factory workweek rise appreciably before we get any outright inventory building,” he said. As for the advance in wages, that was merely “statistical noise,” he said.

Looking Ahead:

Millan Mulraine, strategist from TD Securities, said the report is consistent with growth in the current quarter, even though lob losses will continue in the near-term.

“U.S. businesses continue to adjust their payrolls in the face of weak demand, which will likely limit the extent to which consumer spending can be depended upon to power the eventual recovery.”

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