US Employment August 2010

In August 2010 the US unemployment rate edged higher to 9.6% from 9.5% in July 2010, in line with market expectations. The increase was mostly because of a slight uptick in the labour market participation rate. The US unemployment rate had moved up from a low of 4.4% in March 2007, to a peak of 10.1% in October 2009. Since October 2009 the rate of unemployment has generally fluctuated in a narrow range around 9.7%.

During the month non-farm payrolls fell by 54 000, which was better than market expectations for a decline of 105 000. The previous two months data (June and July 2010) was revised up by a total of 123 000, which is a fairly substantial revision. The main reason for the reduction in employment in August 2010 was a 114 000 decline in the number of temporary employees working on Census 2010. The private sector gained 67 000 jobs in August, which was more than expected (market expected +40 000). In the first eight months of 2010 the US private sector has added 763 000 jobs, which is a relatively modest gain given the stage of the economic recovery, but a vast improvement on the 4 million jobs lost during the same time in 2009.

During the month of August 2010:

• Employment in health care increased by 28 000, with the largest gains occurring in ambulatory health care services (17 000) and hospitals (9 000). Thus far in 2010, the health care industry has added an average of 20 000 jobs per month, about in line with the average monthly job growth in 2009.
   
• Mining employment rose by 8 000. Since a recent low in October 2009, employment in the industry has increased by 72 000. Support activities for mining has accounted for about three-fourths of the gain.
   
• Manufacturing employment declined by 27 000. A decline in motor vehicles and parts (22 000) offset a gain of similar magnitude in July 2010 as the industry departed somewhat from its usual layoff and recall pattern for annual retooling.
   
• Within professional and business services, employment in temporary help services was up by 17 000. This industry has added 392 000 jobs since a recent employment low in September 2009.
   
• Construction employment was up 19 000. This change partially reflected the return to payrolls of 10 000 workers who were on strike in July 2010.
   
• Employment in retail trade was about unchanged. A job gain among motor vehicle and parts dealers (8 000) was essentially offset by losses (6000) in building materials and garden supply stores.
   
• Employment in other private sector industries, including wholesale trade, transportation and warehousing, information, financial activities, and leisure and hospitality, showed little change.
   
• Government employment fell by 121 000, largely reflecting the loss of 114 000 temporary workers hired for Census 2010. The number of temporary Census 2010 workers peaked in May 2010 at 564 000 but has declined to 82 000 in August.

Changes in government employment relating to the Census, continues to distort the overall employment data. However, the underlying trend (gains in private sector employment) remains relatively disappointing. There is no clear upward momentum in private sector employment, which is disappointing given the stage of the economic recovery. For example, by this stage in both the 1981/1983 recession and the 1990/1993 recession, employment was already back to pre-recession levels.

The job market is likely to take a number of years to fully recover, especially when one considers that the previous two employment booms in the US were driven by very specific industry dynamics, namely the growth in the hi-tech sector (1994 to 2000), which ultimately led to a bubble in technology stocks, and the growth in the housing market (2003 to 2007), which ultimately led to a structural oversupply of housing and the credit crisis.

The lack of vibrancy in employment growth implies a below trend recovery in the US, but not necessarily a ‘double-dip’ recession. However, should private sector employment start to decline, that would signal a return to recession conditions.

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