Weakness behind those payroll numbers
Posted
Aug 07 2009, 02:45 PM
by
Anthony Mirhaydari
Rating:
Stocks rallied hard on Friday after the government reported 247,000 jobs were cut in July compared to the 467,000 lost in June. It was the best employment report we've seen in a long time: The drop in employment was the smallest since late last summer. The unemployment rate fell 0.1% to 9.4%.
Yet, after digging into the numbers it's clear that the increase in the unemployment rate is being driven by discouragement, not improvement, in the jobs market.
Some 422,000 people left the labor force last month. Compare this to the 6,664,000 jobs that have been lost since the recession began and it's clear that a large percentage of people are simply giving up hope. Philippa Dunne and Doug Henwood of the Liscio Report note that there is "some serious labor force withdrawal" at work.

Furthermore, it appears that an increasing number of workers are in industries that are in permanent decline or have skills that are no longer needed as the average length of unemployment widens to 25 weeks. Not only does this cast a pall over the back-to-school and holiday shopping seasons, but a contraction in the labor force will make it more difficult for businesses to find qualified workers once the economic recovery truly begins. This is bad news for the likes of Home Depot (HD) and JC Penney (JCP).
Overall, employment has now fallen 4.8% in this recession. Besides the 4.9% employment trough seen in the 1949 downturn, this has been the most severe job loss since the World War II war machine was shut down after V-J Day.
By sector, half of the 247,000 jobs lost in July were in goods production with 76,000 construction and 52,000 manufacturing jobs lost. Motor vehicles were up 28,000 thanks to seasonal adjustments and earlier-than-normal layoffs related to the production shutdown a few months ago. Private services dropped 126,000 with one-third of the loss coming from retail. Government added 7,000 because of a 12,000 increase in federal employment. Healthcare added 10,000 while leisure and hospitality rose 9,000.
Disclosure: The author does not own or control a position in any of the funds or companies mentioned.
Anthony Mirhaydari is a researcher for the Strategic Advantage investment newsletter. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.
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