July NFP—Consensus Estimate 55K to 75K Loss in Payroll Jobs

Release time: Friday, August 1, 2008 — 8:30 AM EST!

U.S. employers trimmed jobs from their payrolls in June for the sixth consecutive month, showing continued—albeit relatively mild—weakness in the labor market. Thus far, job losses are still at a rate soft enough to not pull the overall economy into recession. The Labor Department reported a net loss of 62,000 jobs in June, matching the job loss figure for May, which was revised higher from 49,000. The decline in June employment was slightly worse than the consensus forecast for a 60,000 decline, and brought the number of jobs lost by the U.S. economy so far this year to 438,000.

Several key factors are thought to have influenced the July NFP report. They include:

- An increase in the unemployment rate to 5.5%, matching the May level and consensus expectations.

- The decline of 49,000 (0.04%) in NFPs continues a trend of small declines in payrolls consistent with GDP growth near 1.5%.

- Hourly earnings bounced back to a 0.3% gain after a 0.1% increase in April.

- The four-week moving average for unemployment insurance initial claims neared the worrisome 400,000 benchmark, reaching 390,500—the highest level since the four weeks following 2005's Hurricane Katrina.

For week ending July 19, the Labor Department reported that the advance figure for seasonally adjusted initial claims was 406,000, an increase of 34,000 from the previous week's revised figure of 372,000. They also reported a four-week moving average of 382,500, an increase of 4,500 from the previous week's revised average of 378,000.

While the sequence of negative payroll numbers is certainly not good news for consumers, its relatively soft pace should be kept in perspective. Even incremental gains in economic productivity will keep overall growth slightly positive. While the economic picture isn't necessarily inspiring, neither is it cause for panic. Watch for slow growth ahead.

What is the NFP report?

Of all the world monthly economic reports, the monthly U.S. Non Farm Report (NFP) is the most highly anticipated and has the most dramatic impact on the currency market.

The report, which is released on the first Friday of each month and states the previous month's numbers, provides detailed industry data on employment, hours and earnings of workers on nonfarm payrolls. These numbers are the best way to gauge the current state of the US market as well as the direction that the economy is heading.

What's more, the employment numbers provided by the report are used by the Fed to shape their interest rate policies. The health of the U.S. economy and interest rates translate to the strength or weakness of the U.S. dollar.

June Non-Farm Payroll - Consensus Estimate 50K to 60K Loss in Payroll Jobs

The unemployment rate in May jumped more than it has in over two decades, reaching its highest level since October 2004 and emphasizing the recessionary risk the U.S. economy is currently facing. The civilian unemployment rate spiked to 5.5 percent from 5.0 percent in April, coming in much worse than the expectation of 5.1 percent. The last time the unemployment rate jumped half a percentage point was February 1985. With nearly 49,000 jobs cut from payrolls following decreases of 28,000 in April and 88,000 in March, May marked the fifth consecutive month of job losses. Overall, the economy has shed 324,000 jobs this year.

The latest decrease was led by declines in construction, professional & business services, retail trade, and manufacturing. Revisions to March and April resulted in a net revision downward of 15,000. On the inflation front, average hourly earnings advanced 0.3 percent in May, coming in above the market projection for a 0.2 percent boost.

With widespread payroll losses, the May non-farm report clearly portrayed further deterioration in the labor sector, lessening the ability of the consumer to support economic growth. The jump in unemployment may very well have been exaggerated for technical reasons such as graduating college students attempting to enter the labor market, but nevertheless points to weakening in employment. May's report has also put the Fed in a tough situation by lowering the odds of a healthy rebound in economic growth later this year. Treasury yields fell on the news and equities fell under downward pressure.

For week ending June 21, the Labor Department reported that the advance figure for seasonally adjusted initial claims was 384,000, unchanged from the previous week's revised figure of 384,000. They also reported a four-week moving average of 378,250, an increase of 2,250 from the previous week's revised average of 376,000.

What is the non-farm payroll report?

Of all the world monthly economic reports, the monthly US NFP report is the most highly anticipated and has the most dramatic impact on the currency market.

The report, which is released on the first Friday of each month and states the previous month's numbers, provides detailed industry data on employment, hours and earnings of workers on nonfarm payrolls. These numbers are the best way to gauge the current state of the US market as well as the direction that the economy is heading.

What's more, the employment numbers provided by the report are used by the Fed to shape their interest rate policies. The health of the US economy and interest rates translate to the strength or weakness of the US dollar.