The US unemployment rate ticked up to 8.3% (from 8.2%); the broader underutilization rate increased to 15.0% (from 14.9%).
- In a surprise, a net +163k jobs were created in July, far surpassing consensus estimates of +95k and June’s paltry +64k increase; on average, 105k jobs have been created over the last three months.
- The total number of unemployed (12.8M) increased slightly while the long-term unemployed - those out of work for 6+ months decreased significantly to 40.7% (from 41.9%).
- However, the jobs report was not all good news as the unemployment rate rose despite a US population increase and the departure of 150k civilians from the labor force – two factors that usually act to decrease the overall rate.
Positive signs ahead?
- Quite interestingly, several consumer/employer sentiment-related sectors experienced growth: professional and business services (+49k; +14k in temp help), food services and drinking places (+29k), and manufacturing (+25k, with most gains in durable goods).
- Employment stalwart, health care, grew (+12k) while retail, construction, transportation and warehousing and financial activities showed minimal change.
- The public sector continued to shed jobs with the most losses experienced at the local government education level (-7k).
What’s in store? Key watch items…
On the bearish side:
- Political gridlock. In the ongoing saga worthy of its own soap opera, the uncertainty caused by government inactivity continues to weigh on the global economy and job growth. From the EU’s political haggling over how to handle its sovereign debt crises, to US tax/health care reform, to Congress’ political game of chicken (aka the looming fiscal cliff), government squabbling has made companies wary of hiring as they have no idea what 2013 holds in terms of fiscal/tax policy. Hopefully, with the conclusion of the upcoming US elections, markets will be able to gain more clarity.
- Manufacturing. Global factory output continues to decrease as the effects of the EU and China’s economic slowdowns take their toll. In the US, ISM’s July index reading (49.8) marked the second consecutive month below 50, the baseline threshold for growth. China and EU fared no better as their respective indicators also showed contraction. In the near term, it doesn’t appear that things will get any better as order backlogs fell and businesses’ inventories surged.
On the bullish side:
- Housing. Housing is slowly waking from its 5+ year malaise. According to the Commerce Department, housing added 0.43 of a point to Q112 GDP (which was 2.0). With continued growth, the US may finally be able to rely on a major contributor to GDP growth (and consumer spending), one critical to sustained economic recovery. Nonetheless, the housing sector still has a long way to go…home values are down by $7T from their 2006 peak and 11M+ Americans owe more than $700B more than their homes are worth.
