The Employment Outlook

The Bureau of Labor Statistics released the preliminary Employment Situation report for June last Friday. As expected, non-farm payrolls fell as 225,000 temporary Census workers completed their work terms. Across the public and private sectors, non-farm payrolls dropped by 125,000 jobs; the sharp decline in government employment was partly offset by a net increase of 83,000 private sector jobs. The unemployment rate fell from 9.7 percent in May to 9.5 percent in June, but this result followed from a decline in the labor participation rate.

The increase in private payrolls fell short of market projections, leading many commentators to conclude that the recovery has lost its early momentum. Perspective matters in this assessment. Nothing in the historical record suggests that each month of the recovery should improve upon the last. Taking a long view, the six consecutive months of private sector job growth beginning in January has actually outpaced the last labor market recovery. Of course, job losses during this recession have easily surpassed prior decades’ downturns and we have a long way to go before demand for related commercial real estate returns to previous levels.

Current projections for job growth vary widely around a median estimate of approximately 160,000 net new jobs per month over the second half of 2010. The market’s baseline expectation implies an unemployment rate between 9.2 and 9.8 percent at year’s end, depending upon the labor participation reaction function. My own forecast for job growth is more conservative.

Selected Findings from the June Employment Report

Construction Employment Goods-producing payrolls, including construction and manufacturing jobs, showed signs of continued weakness in June. In particular, construction employment fell by 22,000 jobs, following a decline of 30,000 jobs in May. Most of the construction job losses were in non-residential occupations, both building and specialty trade contractors. This suggests a weak near-term outlook for development activity.

Warehouse Employment In contrast with goods-producing employment, service-providing payrolls increased by 91,000 jobs in June. But the gains were concentrated amongst temporary professional workers and in education and health services. Warehouse employment did rise, by 3,300 jobs, supporting industrial trends.

Office-Using Employment At the upper end of the office-using employment strata, financial services have struggled in spite of healthy profits at a number of bellwether firms. The unemployment rate for financial activities has increased from 5.5 a year ago to 6.9 percent in June. The sector shed 12,000 jobs in May and another 15,000 jobs in June. Information services also lost 8,000 jobs. Professional and business services added 46,000 jobs but this included 41,000 in administrative and waste services.

Retail Employment Retailers shed 6,600 jobs over the month, primarily at automobile dealerships. Department stores and home improvement stores reported the most significant gains. Employment at apparel retailers was largely unchanged.