This morning's job report surprised many people on the upside. Though it was an OK report given the recent performance of the economy and labor market, there's still evidence of some distortions due to seasonal adjustments. When the January employment report was released, I delved into the details and noticed an upward bias due to seasonal adjustments (see commentary). Since then, I've been looking forward to the July report to provide further evidence of the effect of new seasonal adjustments. Basically, seasonal adjustments are designed to remove the impact of employment patterns that typically occur at certain points in the year and are determined by prior trends (i.e., employment patterns from July 2011, July 2010, etc., are used to estimate the seasonal adjustments used for July 2012. The Great Recession distorted the seasonal adjustments resulting in the economy appearing stronger in the Winter months followed by slowdowns in the Spring and rebounds in the summer. For July 2012, if the average seasonal adjustment for 2002-2009 was used, this morning's report would have shown an increase of 122,000 jobs, 41,000 less than officially reported. In fact, the seasonal adjustment for July was the most generous in the past decade (I only checked the data post-2000). While seasonal adjustments are necessary to understand what's going on in the economy, unfortunately, seasonal adjustments in recent years have actually been somewhat misleading.
Moving on, the report shows a sluggish economy that is still growing. Negatives tended to be seen from the household survey including the increase in the unemployment rate to 8.3%; increase in the "real" unemployment rate (U6) to 15%, decline in the employment-population ratio to 58.4%, and the decline in the labor force participation rate to 63.7%. Given the sluggish job market, average hourly earnings have increased by 1.7% in the past year, resulting in almost no increase after inflation (PCE inflation is running at about 1.5%).
The main takeaway from this report is that the economy continues its weak recovery from the Great Recession. With economic growth of under 2%, it's hard to imagine employment growth picking up or unemployment declining any time soon. Still, it signals a weak recovery rather than a slip back into recession.
