The Week Ahead

Vital Signs: Labor Market Starts to Look Better


The last item on Wall Street's agenda for the coming week, before everyone heads out for the long Labor Day weekend, will be the government's August employment report. Stock prices are rising on expectations that at least a modest economic recovery is near, and investors will be looking at the jobs data for more encouraging signs.

Job losses are clearly diminishing, and the unemployment rate may be close to topping out. Payrolls shrank by 247,000 workers in July, the smallest decline in almost a year. Job losses averaged 422,000 per month in the second quarter after declines averaging 691,000 per month in the first quarter. The surprise last month was the dip in the unemployment rate, to 9.4%, from 9.5% in June, a drop that came after 14 months of steady increases.

For August, economists expect a further lessening in job losses, and more signs that joblessness is leveling out. They look for payrolls to fall by 236,000, according to an Aug. 21 survey by Action Economics, and they think the unemployment rate will edge up, back to the June reading of 9.5%.

Trends in both initial claims for jobless benefits and the volume of continuing claims strongly suggest labor market strains are easing. Reading through the ups and downs caused by this year's unusual timing of layoffs in the auto industry, first-time claims remained in a clear downward trend in August. The four-week average edged down to 566,000 on Aug. 22, slightly above the July average of 560,000, but down sharply from its peak of 659,000 in early April.

The news from continuing claims is even more upbeat. The total volume of claims, which tends to shrink dramatically as recessions end, has plummeted to 6.1 million in mid-August, from 6.9 million at the end of June. At least some of that drop reflects state benefits running out after the allotted 26 weeks, but detailed analysis by economists at Barclays Capital suggests a combined drop in first-time claims and voluntary termination, as more people find jobs, account for most of the decline.

If economists are right about second-half growth in real gross domestic product, employment weakness should continue to diminish with the possibility of net job gains by the turn of the year. While the government's second estimate of last quarter's GDP showed no net change in the 1% decline reported earlier, the components now show even more inventory liquidation and a shade more strength in overall demand. That mix supports the notion that exceptionally low inventories will require reordering and more production, and it strengthens the view that real GDP growth is set to pick up into the 2%-to-3% range in the second half, a pace that would be fast enough to bring job losses to a halt.

Here's the weekly calendar, from Action Economics.

  Top Economic Reports Report Date Time For Median Estimate Last Period Chicago Purchasing Managers Index Monday, Aug 31 9:45 a.m. August 46.0 43.4 ISM Index (Manufacturing) Tuesday, Sep 1 10:00 a.m. August 50.0 48.9 Construction Spending Tuesday, Sep 1 10:00 a.m. July -0.3% 0.3% Domestic Auto Sales (Millions) Tuesday, Sep 1 afternoon August 4.5 4.2 Domestic Light Truck Sales (Millions) Tuesday, Sep 1 afternoon August 4.2 4.2 Nonfarm Productivity (Revised) Wednesday, Sep 2 8:30 a.m. Q2 5.9% 6.4% Unit Labor Costs (Revised) Wednesday, Sep 2 8:30 a.m. Q2 -5.3% -5.8% Factory Orders Wednesday, Sep 2 10:00 a.m. July 1.1% 0.4% ISM Index (Nonmanufacturing) Thursday, Sep 3 10:00 a.m. August 48.0 46.4 Nonfarm Payrolls (Thousands) Friday, Sep 4 8:30 a.m. August -236 -247 Manufacturing Payrolls (Thousands) Friday, Sep 4 8:30 a.m. August -50 -52 Unemployment Rate Friday, Sep 4 8:30 a.m. August 9.5% 9.4% Average Hourly Earnings Friday, Sep 4 8:30 a.m. August 0.2% 0.2% Average Weekly Hours Worked Friday, Sep 4 8:30 a.m. August 33.1 33.1
  Other Reports and Events Report/ Events Date Time For Dallas Fed Survey Monday, Aug 31 10:30 a.m. August ICSC-UBS Store Sales Tuesday, Sep 1 7:45 a.m. Aug 23-29 Johnson Redbook Weekly Store Sales Tuesday, Sep 1 8:55 a.m. Aug 23-29 Pending Home Sales Tuesday, Sep 1 10:00 a.m. July Mortgage Applications Wednesday, Sep 2 7:00 a.m. Aug 23-29 ADP Employment Report Wednesday, Sep 2 8:15 a.m. August Federal Reserve FOMC minutes Wednesday, Sep 2 2:00 p.m. Aug 11-12 Initial Unemployment Claims Thursday, Sep 3 8:30 a.m. Aug 23-29
Cooper is BusinessWeek's senior editor and senior economist and writes the influential Business Outlook column.

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