July Unemployment Rises to 8.3 Pct., Job Creation Strengthens

Aug. 3, 2012 — -- The economy added a robust 163,000 jobs in July but unemployment rose to 8.3 percent as fewer people participated in the work force, the Labor Department reported Friday.

With only three months to go before the presidential election, the country is eyeing the nation's unemployment to assess the state of the U.S. economy. The jobs report was mostly good news and stocks advanced. June's revised report showed that employers added just 64,000 jobs that month.

"This jobs report has very mixed news ranging from a decent payroll growth number of +163k, to very disappointing numbers from the household survey," said Stephen Bronars, chief economist with Welch Consulting. "In the household survey the unemployment rate increased from 8.2 to 8.3, the employment to population ratio fell and the participation rate fell in July. Those are all very troubling."

Unemployment has been above 8 percent for 41 consecutive months. The Labor Department report showed that the actual number of Americans working dropped by 195,000. That means the net gain reported in July was due to seasonal adjustments.

Like most of his colleagues, Bronars expected the unemployment rate to remain at 8.2 percent with an addition of just over 100,000 jobs. Many economists had expected 100,000 jobs would be added to the U.S. economy.

"After today's report there are only three more reports before the election, so everyone is looking for some kind of evidence that the labor market slowdown will be reversed. That seems unlikely based on the numbers that we have seen in the past few weeks," he said.

"It should also be remembered that there is a large seasonal adjustment in July. Taken together this means that we can't be very happy with the overall jobs report. There are too many negatives in the household survey and much of the gain of 163k is due to a large seasonal adjustment," Bronars added.

But Bronars cautioned into reading too much into the estimated change in jobs in July. Other than December to January, June to July has the biggest seasonal adjustment factor.

The headline number is a seasonally adjusted number, taking into account that employment in July is typically much lower than in June. Bronars said seemingly small differences in seasonal adjustments from one year to the next can cause a swing of more than 100,000 jobs in the headline report for job growth.

What concerns Bronars is that last month the number of people unemployed for five weeks or less increased to its highest value in a year.

In the past two months, new jobless claims have been higher than earlier in the year also.

"If we continue to see increases in the number of people entering unemployment its a sign that the labor market remains weak," Bronars said.

On Thursday, the Labor Department reported that weekly jobless claims rose to 365,000 for the week ending July 28 from the previous week's revised figure of 357,000. The figure was lower than the expected 370,000. The four-week moving average fell to 366,000 from 368,000.

Though the net decline in claims from a month ago is "encouraging," according to Jim O'Sullivan, chief U.S. economist with High Frequency Economics, it was subject to short-term distortions and describes two weeks after the sample for Friday's employment report was taken.

Among other lingering problems for the nation's unemployed, Bronars pointed out that construction employment has been unchanged in the past two years and remains down more than 2 million, or about 28 percent, from 2007. He said the continued weakness in he housing sector is a problem for construction workers who have been out of work, or underemployed, for years.

And not unexpectedly, unemployment is worst for those without skills. Ninety-two percent of the employment gains in the past year have been for workers with more than a high school diploma.