Why the July Jobs Report Signals Hope

Labor Department data show the pace of job cuts is slowing more than economists expected.

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Finally, some good news for the nation's long-suffering job seekers: Employers cut just 247,000 jobs last month, the smallest payroll slice since last August, the Labor Department reported today. The unemployment rate slipped back a tenth of a percentage point, to 9.4 percent. There were 14.5 million Americans out of work and searching for jobs in July, a number mostly unchanged from June.

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What are the high points here? The major bright spot is the significant drop in job cuts. Monthly job losses have averaged 331,000 from May forward, half the average losses for November through April. July's job-cut number was well below economists' expectations.

More good news: The number of part-time employees who would prefer full-time jobs (including many who saw their full-time jobs cut to part-time) has not been growing as it had earlier in the recession. The average work week edged back up by 0.1 hours, to 33.1 hours, and the average manufacturing work week increased by 0.3 hour, to 39.8 hours.

Note, too, that the Labor Department revised job numbers for May and June to show fewer cuts than were initially reported.

Is there still bad news? Aside from the fact that employers still cut nearly a quarter of a million jobs last month—yes, there is other bad news here, too. Most troublesome is the number of long-term unemployed—people who have been searching for work for six months or more. The figure increased 584,000 in July, to 5 million. That means that 1 in 3 unemployed Americans has been out of work for 27 weeks or more. This data will no doubt add political pressure to efforts in Congress to pass another extension of federally funded unemployment benefits. An estimated 1.5 million Americans are expected to exhaust their benefits by the end of the year, according to research by the National Employment Law Project. In many states, unemployment benefits with federal extensions last 79 weeks.

[See 5 things to know about exhausting unemployment benefits.]

What is happening in each industry? Manufacturing employment has now fallen by 2 million since the start of the recession. There were 52,000 manufacturing cuts last month, the Labor Department reported. And that was despite the fact that there were fewer cuts than usual for retooling in the vehicles and parts industry because earlier layoffs had cut employment in that sector so deeply. Motor vehicles actually posted a payroll increase.

Construction employment declined by 76,000 in July—a number that actually signals cuts are trending lower than earlier in the recession.

Retail employment fell more sharply than in previous months, as employers cut 44,000 jobs in July. Employers in professional and business services cut 38,000 jobs. Temp jobs are still being cut, but at a much slower pace. Job declines also decreased significantly within finance and transportation and warehousing. Healthcare added 20,000 jobs. Leisure and hospitality payrolls edged up by 9,000.

What are the experts saying? "The number of those unemployed for 27 weeks or more rose to 4.965 million in July, up from 4.381 million in June. This is easily the highest number on record and, for those who would insist this is meaningless given growth in the labor force over time, it represents 3.21 percent of the civilian labor force, the highest share on record. As of July, 53.5 percent of the unemployed are so because they have lost their jobs permanently, the highest figure in the life of the data, while 11.4 percent are on temporary layoff. This is one sign that the current recession has generated a considerable degree of structural, as opposed to cyclical, unemployment, reflecting the amount of excess capacity that had developed in the economy over recent years in areas such as construction, financial services, retail trade, and auto production/sales. Even as the economy recovers, these displaced workers will likely be unemployed for a prolonged period. " Richard Moody, chief economist at Forward Capital