The New Normal Continues: a sluggish employment picture...

The decades of fueling spending and growth with debt are long over. Consumers, companies and countries are all shedding their debts, leading to years of slow economic growth and meager returns on investments.  To that point, today's June employment situation report disappointed, as modest private sector hiring suggests that the economy is still struggling. Employment fell in June for the first time this year, reflecting a drop in federal census workers and a smaller-than-forecast gain in private hiring. Here are the headline data points

• U.S. non-farm payrolls down 125k (had surged in May by +433k)
• Private sector payrolls up 85k (forecast of 125k); furthermore, May was revised down to +33k from an initially reported 41k gain.
• Jobless rate edged down to 9.5% (9.7% expected), which is the lowest level since July 2009, and below the 26-year high of 10.1% in October 2009. However, this wasn't necessarily good, as it reflected 0.65 million people dropping out of the labor force.
• The impact of temporary census workers continues to distort the trend in employment, as the figure edged down 225k (leaving ~339,000 temporary employees still working on the survey, indicating more cuts to come that will keep distorting the employment figures for months; therefore, private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for the rest of the year).

Most troubling is the shrinking labor force, where unemployment fell by 350k to 14.6mm for June, but with employment also falling a sharp 301k to 139.1mm.  This is the second straight sharp monthly decline.

With regard to the peripheral employment picture, the underemployment rate, which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking, the level decreased to 16.5% from 16.6%, but this change is likely not a significant movement.  The number of temporary workers increased 20,500 (payrolls at temporary-help agencies often picks up before companies take on permanent staff)

In terms of notable sector movements, private employment in June was led by gains in:
        - education
        - health services
        - transportation
        - leisure and hospitality.
However, Manufacturing payrolls increased by 9,000 in June, the smallest gain this year and less than the survey median of a 25,000 increase. Those gains may slacken as the industry leading the U.S. economic expansion cools and as a Thursday 7/1 report showed that manufacturing expanded in June at the slowest pace of the year as orders and exports decelerated.  Additionally, service-providers decreased 117,000 after rising 420,000 and Construction companies cut payrolls by 22,000 after reducing them 30,000 in May.

As discussed previously, the key question facing us now is of how the economy will fare once government-led stimulus efforts are withdrawn. Accordingly, Government payrolls decreased by 208,000. State and local governments employment declined by 10,000, while the federal government jobs dropped 198,000.

With regard to overall averages, the report also showed declines in average hourly earnings and hours worked, falling $0.02 to $22.53 in June, with the average work week for all workers declined to 34.1 hours in June from 34.2 hours the prior month.

Going into the report, the U.S. dollar was materially weaker, and in the hour post-announcement has been marked by heightened volatility in both the EUR/USD, USD/JPY, and EUR/JPY (a key indicator of risk taking willingness) pairs. The 10-year treasury continues to sell off.

As Bill Gross previously stated, "we have arrived at a new normal where, despite the introduction of 3 billion new consumers over the past several decades in 'Chindia' and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it... slow growth in the developed world, insufficiently high levels of consumption in the emerging world and seemingly inexplicable low total returns on investment portfolios--bonds and stocks--lie ahead."