The July Jobs Report

There’s qualified good news about the economy for July:

The U.S. economy followed up a weak second quarter by creating more jobs than expected with 163,000 new positions added in July, but the unemployment rate rose to 8.3 percent

Markets reacted positively to the announcement, with the stock market surging at the open and safe-haven bond prices plunging. Economists had been expecting 100,000 new jobs.
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“I’d call this a soft 163,” said Steve Blitz, chief economist at investment research firm ITG in New York. “If you want to take from this the notion that the economy is not heading to a recession or something more ominous, that’s fine. But if you want to take from this the idea that the economy is about to accelerate, I think that would be a big mistake.”

Ultra-conservative blogger and Wall Street Journal columnist James Pethoukoukis tells us why there is nothing positive about 63,000 more new jobs last month than economists even were expecting:

Only in a world of lowered, New Normal expectations was the July jobs report anything less than another disaster for U.S. workers. Nonfarm payrolls rose 163,000 last month as the unemployment rate rose to 8.3%. In addition, employment for May and June was revised by 6,000 jobs.

”“ Not only is the 8.3% unemployment rate way above the 5.6% unemployment rate that Team Obama predicted for July 2012 if Congress passed the $800 billion stimulus plan. It’s way above the 6.0% unemployment rate they predicted if no stimulus was passed.

”“ Job growth, as measured by nonfarm payrolls, has average about 75,000 jobs a month during the Obama recovery for a total of 2.7 million jobs. Context: During the first three years of the Reagan Recovery, job growth averaged 273,000 a month for a total of 9.8 million. If you adjust for the larger U.S. population today, the Reagan Recovery averaged 360,000 jobs a month for a three-year total of 13 million jobs.

”“ This continues to be the longest stretch of 8% or higher unemployment since the Great Depression, 42 straight months.

”“ If the labor force participation rate was the same as when Obama took office in January 2009, the unemployment rate would be 11.0%.

”“ Even if you take into account that the LFP should be declining as America ages, the unemployment rate would be 10.6%.

”“ If labor force participation rate hadn’t declined since just last month, unemployment rate would have risen to 8.4%.

”“ The broader U-6 unemployment rate, which includes ”œall persons marginally attached to the labor force, plus total employed part time for economic reasons,” ticked up to 15.0%.

”“ Two years ago, Treasury Secretary Tim Geithner wrote his now-infamous ”œWelcome to the Recovery” op-ed for the New York Times. During those two years, the economy has added an average of just 137,000 jobs a month.

I’m sure it’s just an inadvertent oversight that Pethoukouis failed to include in the above litany the part that hundreds of thousands fewer public sector jobs has played in the weak economic recovery:

A notable aspect of the July employment report is the decline in public-sector employment. In fact, public-sector employment (i.e. federal, state, and local government jobs) declined in 10 of the past 12 months, in sharp contrast to 29 consecutive months of private-sector job growth. Indeed, falling public employment has been among the largest contributors to unemployment in the United States since the end of the Great Recession.

The labor market continued its modest rate of expansion in July, according to today’s employment report. Employers added 163,000 jobs last month, the largest increase since February. The unemployment rate remained essentially unchanged at 8.3 percent.

A notable aspect of the July employment report is the decline in public-sector employment. In fact, public-sector employment (i.e. federal, state, and local government jobs) declined in 10 of the past 12 months, in sharp contrast to 29 consecutive months of private-sector job growth. Indeed, falling public employment has been among the largest contributors to unemployment in the United States since the end of the Great Recession.

In this month’s employment analysis, The Hamilton Project examines public-sector employment trends over the last three decades and finds that government employment contracted, both in absolute numbers and as a share of the population, during the Great Recession and throughout the current recovery. Additionally, we report on the results of a new analysis that finds that the cuts in public school teachers are projected to reduce the future earnings of today’s students by more than five times as much as the current budget savings.
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Total government (i.e., the sum of state, local, and federal) employment has decreased by over 580,000 jobs since the end of the recession, the largest decrease in any sector since the recovery began in July 2009. State and local governments, faced with tough choices imposed by the confluence of balanced-budget requirements, falling tax revenues, and greater demand for public services, have been forced to lay off teachers, police officers, and other workers.
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In the short term, reducing government employment, particularly during recessions, adds workers directly to the unemployment rolls. In addition, fewer workers translates into fewer paychecks, which dampens consumption and further spreads through the economy, magnifying the effects of the recession.

To examine the direct consequences of lower government employment, consider the case in which employment had hewed to its historical level. Between 2001 and 2007, the average ratio of government employment to population was 9.7 percent. Had that share remained steady, government employment would have been more than 23.6 million in June 2012 as compared to its actual level of 21.9 million. That is, employment would be 1.7 million jobs higher today if the share had remained constant, and the unemployment rate would be 7.1 percent instead of the current rate of 8.2 percent. …