The BLS has released the July 2007 Employment Report.

Nonfarm payroll employment continued to trend up (+92,000) in July, and the unemployment rate (4.6 percent) was essentially unchanged, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment grew in several service-providing industries. Average hourly earnings rose by 6 cents, or 0.3 percent.

Report Highlights

  • Nonfarm Employment +92,000
  • Goods Producing -12,000
  • Construction -12,000
  • Manufacturing -2,000
  • Service Providing +104,000

Construction and manufacturing are a subset of goods producing so don’t add the above numbers together. The trend however is clear: We keep losing higher paying jobs for lower paying service jobs.

In addition the average work week fell slightly to 33.8 hours from 33.9 hours. Average weekly earnings rose $.29 (or $15.08/year), not even enough to buy half a tank of gas for the average SUV.

Finally I would like to point out the peculiar way the report was worded. “Nonfarm payroll employment continued to trend up...” is quite a bit of cheerleading for such a weak number. +92,000 does not come close to keeping up with the birth rate and immigration. It takes close to 150,000 to do that. Thus far in 2007, employment has increased by an average of 136,000 per month compared with an average monthly gain of 189,000 in 2006 (and it took some amazing birth/death revisions to get there).

Birth Death Model Adds Another 26,000 Jobs

(click on chart for a sharper image)

Please see Employment on Pluto Rises for a recap of the absurd job assumptions by the BLS from January to June that has caused a huge overstatement of payroll employment thus far in 2007.

The current report shows the Birth/Death revision of +26,000 jobs. Perhaps that might seem reasonable, but really it’s not. Take a look at January 2007. January and July are typically revision months where the BLS makes some effort to take away some of the overstated jobs in the previous five months. There was no such revision this month, and once again the BLS model added to construction jobs in the midst of an enormous slowdown in housing.

Following is an updated snip from the above link about Employment on Pluto.

The BLS is assuming not only that jobs were added, but that new unaccounted construction businesses were created in this environment (where business capex spending has been weak, housing has been horrid, and over 60 lenders have gone out of business or stopped writing loans.

Neither economist Paul Kasriel at the Northern Trust nor I find those revisions reasonable. The reason is simple. The idea behind the birth/death model is the birth and death of businesses (supposedly in relation to the business cycle).

Are new construction companies really being created in this environment or are they going out of business? If the latter, perhaps jobs should have been subtracted (not added) to construction businesses numbers.

With 150,000 construction jobs being added over the last five months by the BLS model, these reports look like they are from some other planet.

Economists On Mars

Supposedly this slowdown in jobs is “Good News“. I base that statement on the Bloomberg article Job Gains Slow, Unemployment Rate Rises.

Employers in the U.S. added fewer jobs than forecast and the unemployment rate rose as the economy cooled in response to the worst housing recession in 16 years.

“We are still creating jobs right around a pace consistent with moderate growth,” said Michael Feroli, an economist with JPMorgan Chase & Co. in New York and a former Fed forecaster. “We are getting a little bit of the slack that the Fed was looking for.”

After the employment report, JPMorgan pushed back its forecast for when the Fed will change interest rates. The firm expects an increase in the middle of next year, compared with its prior prediction of around the end of this year.

Chairman Ben S. Bernanke “made it clear that the Fed has been trying to engineer a rise in the unemployment rate for a while,” said Christopher Low, chief economist at FTN Financial in New York. “The modest rise in payrolls should also make them happy.”

Economists Michael Feroli and Christopher Low must have been schooled on Mars, Pluto, or some asteroid belt near Jupiter. Here you go guys: Rising employment does not cause inflation. It never has and it never will. Yes, rising employment can be a result of rising inflation but the difference is significant.

The latter can happen when too much money (credit/debt) goes sloshing around creating all sorts of malinvestments such as bubbles in housing. The housing bubble in turn fueled a jobs boom that would not have happened had the Fed not slashed interest rates to 1%. We are in the aftermath right now and it’s not pretty.

Nonetheless the moonbats at the BLS are still sticking have a model that seems to think small businesses are being created hand over fist even though lending standards have dramatically tightened, liquidity is rapidly drying up, and IPOs are going on hold. And for some unknown reason Plutoians hiding out at JPMorgan are sticking with a forecast that has rising interest rates even though the Fed Fund Futures have a 90% probability of a rate cut priced in.

Fed’s Biggest Fear

The Fed’s biggest fear should be of a collapsing economy, falling jobs, and a rising unemployment rate. And all three are going to happen. Look at the unemployment rate. It has bottomed and only has one way to go: up.


Already foreclosures are at record levels nearly everywhere. Clearly consumers are cash strapped. Even a modest 1% rise in the unemployment rate would wreck consumer’s ability to meet debt obligations. All those who foolishly plowed into housing at absurd prices they could not afford (making wall street insiders filthy rich by unloading worthless CDOs for enormous fees to unsuspecting and/or greedy pension plans and insurance companies) are now facing margin calls of their own.

Essentially that is what is happening. Overleveraged consumers are now facing margin calls on their houses. For a while, home owners were able to meet those margin calls by borrowing still further against rising asset prices. Now that home prices are no longer rising, there is no means to make those margin calls. Rising unemployment is sure not going to help any.

Mike Shedlock / Mish/