The labor market remains tough terrain: Companies are still letting more workers go than they are hiring, and wages have stagnated the past few months. But today’s data do not reflect another leg down for the economy as a whole. Payroll losses were higher than expected, but still less severe than they were earlier this year. In addition, the unemployment rate ticked up less than expected. Although some will attribute the smaller-than-expected increase in the jobless rate in June to a decline in the labor force (the number of people working or actively looking for work), the labor force has increased 1.2 million in the last five months. Without this increase, the jobless rate would be 8.8 percent today, not 9.5 percent.
Other recent data on the labor market show improvement. New claims for unemployment insurance dropped 16,000 last week to 614,000. Continuing claims for regular benefits fell 53,000 to 6.702 million. Meanwhile, Challenger, Gray & Christmas, a Chicago-based job-placement firm, reported employers are planning fewer layoffs than at the same time last year. The U.S. economy has never healed in a perfectly straight line with all aspects of the economy getting better at the exact same time. As is often the case, the labor market is lagging behind other indicators showing the recession is over, including yesterday’s ISM Manufacturing report. A healing economy with a lagging labor market is a recipe for a major improvement in corporate profits.
– Robert Stein is a senior economist at First Trust Advisors.