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A Closer Look At Payroll, Jobless Claims Data


Unemployment rate may continue to rise into 2010, peaking near 11%.


Jack Lavery is the former Global Chief Economist at Merrill Lynch and author of The Lavery Insight economic newsletter offered exclusively on Minyanville. For a free 14 day trial, click here.

Non-Farm Payrolls Drop More Than Expected

Non-farm payrolls fell 467,000 in June, worse than my forecast of a decline of 420,000, and considerably worse than market/consensus expectations of 365,000. Expectations for June likely worsened after yesterday's ADP National Employment Report.

With today's release of the June data, came revisions to the April and May employment numbers. May's payroll employment decline had been estimated initially by the Bureau of Labor Statistics (BLS) as 345,000. That drop was revised to less of a decline, 322,000. In contrast, the April payroll employment decline of 504,000 was revised to a bigger drop of 519,000. Taken together, the revisions to April and May were largely offsetting, netting an upward revision of 8,000 to April and May payrolls.

While today's payroll employment decline for June is disappointing, looked at over the last 8 months of data, the pace of payroll employment declines has slowed markedly. Payroll employment declines averaged 436,000 over the course of April, May, and June. In contrast, job losses averaged 670,000 over the 5 month period from November 2008 through March 2009.

The unemployment rate moved higher to 9.5% in June from 9.4% in May, as labor market conditions continued to deteriorate.

There are two important takeaways from today's employment detail. The BLS data for June revealed no change in hourly earnings, and a decline in the average workweek to 33 hours. This combines to weaken weekly earnings by 0.3% in June, translating, I believe, into a 0.2% drop in June wages and salaries.

First, I believe personal income in June declined, which reinforces my expectation of a 2Q:'09 decline in real personal consumption spending when second quarter real GDP is initially reported by the Bureau of Economic Analysis on July 31.

Secondly, I believe, when the Federal Open Market Committee (FOMC) meets on August 11 and 12, it will maintain an essentially 0% federal funds posture, and will continue to do so well into 2010.
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