U.S. employment news was disappointing again in July.  American business leaders simply remain wary of Washington’s anti-business stance and rhetoric…and prefer to enhance earnings through cost-cutting investments in technology and finding more creative ways to maximize current employment levels.

The American economy lost 131,000 net jobs in July, about 70,000 worse than expected.  The loss of 143,000 temporary Census jobs, which was expected by economists, pushed the “headline” number into the red.

Private sector employment rose by 71,000 jobs, less than the 90,000 consensus forecast.  To add insult to injury, June’s previously reported net loss of 125,000 jobs was revised to a net loss of 221,000 jobs.  Private sector gains in June were revised sharply lower from a gain of 83,000 jobs to only 31,000 jobs.

The nation’s unemployment rate was 9.5% in July, matching June’s rate.  Forecasting economists had expected a slight rise to 9.6%.  The rate remained unchanged because another 181,000 people left the labor force, on top of the 652,000 people who left the labor force in June.   These people—no longer looking for jobs—are no longer counted as unemployed.

The loss of temporary Census jobs has led the employment data to be extremely volatile in recent months (see chart).  An additional 196,000 temporary Census jobs are still to be eliminated, suggesting the “headline” numbers of the next few months will also be weak.  Economists and financial market players will continue to focus on private sector job gains…or losses.

Good news?  The private sector added 630,000 net new jobs during 2010’s first seven months, an average gain of 90,000 net new jobs monthly.  Bad news?  The pace of private sector gains has slowed versus March to May.

Government Employment

In addition, total government employment away from the Census has also been extremely weak, with a loss of 59,000 jobs in July, and nearly 170,000 jobs year-to-date.  The Great Recession has had the most detrimental impact on state & local employment of any economic event since the Great Depression.

Some would suggest that a significant reversal of employment at the state & local level is necessary after the excessive employment build-up in many states in the years between roughly 2002 and 2007.  The President’s very recent proposal to give another $26 billion of borrowed money to states to help offset cuts to teachers and other state & local employees draws both praise and criticism from politicians and voters.  Even with the new funding, it is likely that state & local employment will continue to decline modestly over the balance of the year.

The Data

Goods producing employment rose by 33,000 positions in July, led by a rise of 36,000 net new manufacturing jobs.  Mining & logging added 8,000 jobs, while construction lost 11,000 jobs.

The private service providing employment area added 38,000 net new jobs in July, led by 30,000 additional jobs in education & health services.  The transportation & warehousing sector added 12,000 jobs, while wholesale & retail sales added a combined 15,000 jobs.

Financial activities lost 17,000 jobs, while professional & business services lost 13,000 positions.  Leisure & hospitality, information, and other services added 11,000 jobs.

Brighter Spots

Even as the overall employment report was weak, there were a few bright spots:

• The number of people out of work for six months or more dropped slightly from 6.8 million in June to 6.6 million in July

• The median duration of unemployment (half less, half more) declined from 25.5 weeks in June to 22.2 weeks in July

• The “underemployment” rate, a figure which includes those unemployed, people working part-time who would prefer to work full-time, and those discouraged workers who have given up looking for a job, remained at 16.5% in July.  The rate had exceeded 17.0% as recently as April

• The average hourly wage of all employees on private nonfarm payrolls rose four cents (0.2%) in July, with a meager 1.8% rise during the past 12 months.  However, the 1.8% rise exceeds the 1.1% increase in the Consumer Price Index during the most recent 12-month period

• The average workweek for all employees on private nonfarm payrolls increased by 0.1 hours to 34.2 hours in July, the equivalent of more than 400,000 new jobs

In addition, there is a trend afoot that may be surprising…and is clearly good news.  More American firms that had previously shipped manufacturing jobs to China and other lower-cost nations are rethinking that proposition, with more companies returning jobs to the U.S.  Sharply higher wage costs in Asia, high shipping costs, quality concerns, long product cycles and various other reasons have led to this “onshoring” development.  More on this issue in coming weeks…

What To Do?

Needless to say—and with critical Congressional elections now less than three months away—the Administration and the Congressional leadership are less than thrilled with a U.S. economy that has transitioned to a slower growth pace.  Discussions abound in regard to what needs to be done…if anything.

At this point, another stimulus program seems unlikely, although more liberal elements within the Democratic Party will push hard for more government…and more spending.  I would argue that any short-term benefit tied to more stimulus would be more than offset by even greater anxiety about even larger budget deficits.

Federal Reserve Chair Bernanke has suggested that the Fed would consider more “monetary” stimulus to help boost a lagging recovery.  The fact that financial markets are arguably now more concerned about deflation than inflation would support any new Fed initiatives.

As Election Day approaches, don’t be surprised if the President proposes to extend the Bush tax cuts for all income groups for another year.  Such tax cuts—enacted in 2001 and 2003—are scheduled to end on December 31, rendering what would be the largest tax increase in history.

The President has suggested frequently that any tax increases would only apply to those individuals making more than $200,000 annually (couples making $250,000 annually).  He just might acknowledge that these people…primarily small business owners…are the people who invest and create jobs in the economy…and a hike in tax rates is not a good idea…

…what a concept

Back to School Special

Sixteen years ago, we published “A Father’s Letter to My Children in School” and the response was amazing, with requests to reprint over 150,000 copies.  Since then, just as students around the country are getting ready to go back to school, we run it again.  We hope you enjoy it.

Order Copies

Due to its strong demand, we have published A Parent’s Letter to My Children in School with illustrations as a soft-cover book.  It normally retails for $8.95, but as a back-to-school special now through August 31, you can have it for only $5.95.

And to make sure you have as many copies as you need for all the students on your list, we will reduce the price even further for orders of 5 or more copies—plus you get free shipping on all orders over $29.  Give us a call at 888-847-3346 or visit www.parentsletter.com for details and to take a special inside look at A Parent’s Letter.  Or simply click on “Add to Cart” now to place your order.