Don't Like Your Job? You May Not Have It Soon

We've seen this movie before. The labor market didn't turn it all around this month.

In July, it's likely that jobs were lost and the unemployment rate rose again. Accentuating the positive is becoming a tougher task when it comes to the monthly jobs report. In this incarnation, a positive report would be job losses in limited areas and just a small increase in the unemployment rate.

The employment report will be released at 8:30 a.m. EDT Friday. Economists polled by Reuters expect a decline of 50,000 in nonfarm payrolls, led by the manufacturing sector. Experts are also looking for the unemployment rate to rise to 4.6% from 4.5%, and for average hourly earnings to rise by 0.3%, which would put the year-over-year rate of change at 4.2%.

June's report was notable for its breadth in job losses. The service sector was noticeably weak, and jobs were also lost in the construction sector. Previous months had shown a reasonable amount of resistance in other industries nationwide to the widespread weakness in manufacturing. But some economists believe tomorrow's release could show the job market is continuing to deteriorate, but not just in a couple of areas.

"We'll have to see if the breadth of job losses widens," said Brian Jones, economist at Salomon Smith Barney, who is looking for a 125,000 decline in payrolls and for the unemployment rate to rise to 4.7%. "It clearly did in last month's jobs report."

What worries Jones are the monthly diffusion indices contained in the release. Those indices measure the percentage of firms in the country that are hiring people. Similar to the National Association of Purchasing Management's purchasing managers' index, 50 is the break-even point. Below 50, and more firms are letting go of workers than those who are hiring. The three-month index fell below 50 in March and has worsened since.

Other monthly indicators show ongoing softness in the labor market. The Help Wanted Index dropped again last month, showing that fewer companies are looking for workers. The number of people continuing to collect unemployment rose to more than 3 million two weeks ago, according to the Labor Department.

The most recent NAPM release showed the unemployment index still below 50, which indicates contraction in manufacturing employment. However, it was higher than June's figure, so the pace of job losses has apparently slowed. (Seasonal adjustments relating to the end of the school year or furloughs in the auto industry could skew this report making it appear stronger or weaker than expected, and that could influence the market's interpretation of the release.)

At this stage, the one facet of the economy that's been hanging in is consumer spending. The ongoing strength in the job market has helped keep that going, but consumers have been slowing their rate of spending in recent months as more folks are out of work. Fed Chairman Alan Greenspan , in his semiannual monetary policy report to Congress two weeks ago, said he was no longer concerned that a breach of consumer confidence would take place and cause the economy to spiral into a recession.

Don't Even Think About It

Consumer confidence has declined in recent months, and a worsening job market is a heavy part of that equation. If jobs are shed, demand will continue to erode, and the economy could be facing more trouble in coming months. For now, 95.5% of the labor force is employed, and wages are rising, even as companies endeavor to cut costs. These aspects have buffered the softness in the labor market.

Of course, everyone will be gauging this report to see what kind of rise the Federal Reserve will get out of it. First things first -- the Fed, regardless of the report's news, will not cut rates tomorrow. Nor will it cut rates Monday. Or Tuesday.

"I think you'd need a shockingly weak number to get the Fed off the 25-basis point pattern," said Bill Quan, economist at Aubrey G. Lanston.