Unemployment Report Looks Better But The Inside Story Makes The Unemployment Rate Rise

Monday, August 06, 2012 07:00
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Unemployment Report Looks Better But The Inside Story Makes The Unemployment Rate Rise

Tags: economic indicators | economy | Federal Reserve | investment strategies

The jobs report on Friday injected short-term hope into the US economic recovery landscape but there was a caveat. The increase in non-farm payrolls in the July report—an increase of 163,000—was the largest increase since February. But the unemployment rate also rose to 8.3% from 8.2%.

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The hope for the broader economy comes from signs that the economic slowdown since late March may indeed be temporary. Signs like the jobs report on Friday. There’s also renewed optimism that Europe may finally get its house in order. A third source of buoyancy came from signs that the slowdown in China’s and the other BRIC countries’ economies seem to be running its course.
 
So what’s with the rise in the unemployment rate? That’s only one sign in Friday’s report that’s not so great. For example, hourly wages rose but not as much as they did in the previous month. And actually, there were more laborers leaving the job market than those who found work.
 
This is because many were simply giving up the hunt. And those not looking for jobs don’t get counted. As well, seasonal factors such as fewer shutdowns than normal at auto plants could have resulted in an artificially high number of new jobs.
 
The report wasn’t strong enough to take the Fed off its possible-action watch. The unemployment rate is rising, not falling, and that means that jobs are not being created fast enough for the economy to become sustainable. That’s one of the charges Congress has given the Fed. That means the Fed is going to have to figure out a better way to get things going on the economic front.
 
Jobs in the private sector grew by 172,000. Job cuts by government and the construction industry continued tapering off. A broader measurement of unemployment which includes those looking for jobs as well as part-time workers rose slightly to 15% from 14.9%.
 
And the government adjusts the jobs number to account for shutdowns in the auto sector. This means the jobs number could look better than it really is if fewer workers were laid off last month.

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