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June New Jobs Came In Below Forecast and May Was Revised Down by 26K

July 2, 2015

by Doug Short

Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Total nonfarm payroll employment increased by 223,000 in June, and the unemployment rate declined to 5.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, retail trade, financial activities, and in transportation and warehousing.

Today's report of 223K new nonfarm jobs in June was a bit below the Investing.com forecast of 230K. More significant is the fact that May nonfarm payrolls were revised downward by 26K from 280K to 254K and April downward by 34K from 221K to 187K, a total revision of -60K for the two months.

The unemployment rate ticked down two notches from 5.5% to 5.3%, a drop driven by a larger decline in the labor force (432K) than the reduction in the unemployed (375K).

Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000.

PAYEMS Monthly Change

The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and the S&P Composite since 1948.

Unemployment is usually a lagging indicator that moves inversely with equity prices (top series in the chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The mirror relationship appears to be repeating itself with the most recent and previous bear markets.

Unemployment and the Market

The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It is now at its post-recession low of 1.4%, down from 1.6% the previous month.

Unemployed 27+ Weeks

The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over.

Employment Population Ratio

The inverse correlation between the two series is obvious. We can also see the accelerating growth of women in the workforce and two-income households in the early 1980's. Following the end of the last recession, the employment population has been range bound between 58.2% and 59.4% — the lower end of which that harkens back to the 58.1% ratio of March 1953, when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans.

The latest ratio of 59.3% is hovering just below its post-recession high.

For a confirming view of the secular change the US is experiencing on the employment front, the next chart illustrates the labor force participation rate. We're at 62.6%, down from 62.9% last month and at a level not seen since the late 1970s.

Labor Force Participation Rate

The employment-population ratio and participation rate will be interesting to watch going forward. The first wave of Boomers will continue to be a downward force on this ratio. The oldest of them were eligible for early retirement when the Great Recession began, and the transition of the Boomer cohort to full retirement age won't end until 2030.

What is the average length of unemployment? As the next chart illustrates, we are perhaps seeing a paradigm shift — the result of global outsourcing and efficiencies of technology. The post-recession duration of unemployment remains high at 28.1 weeks, although that's well off the 40.7-week all-time high in late 2011.

Duration of Unemployment

The Bureau of Labor Statistics' broadest measure of unemployment is the U6 series, which includes the total unemployed, plus all marginally attached workers plus total employed part time for economic reasons. This series dates from 1994.

U6 Unemployment

The U6 series continues to show improvement and is now at its post-recession low. However, it remains above its 9.1% average between the last two recessions.


Notes: The start date of 1948 in the charts above was determined by the earliest monthly employment data collected by the Bureau of Labor Statistics. The best source for the historic data is the Federal Reserve Bank of St. Louis.

The S&P Composite is a splice of the S&P500, which started in 1957, with the S&P 90, which preceded it.