07/09/2012 12:23 pm ET | Updated Sep 08, 2012

Job Growth Tepid, Unemployment Still Too High

Payroll employment increased by 80,000 in June, driven by gains in business services. Much of that occurred in temporary help, which is becoming the new semi-permanent hire. Firms can remain flexible in an uncertain environment by hiring on a contingency basis via consultants and temporary workers. Indeed, about a quarter of all private jobs created since the start of the recovery have occurred in the professional and business services sector.

Manufacturing employment also continued to rise, driven by ongoing gains in the auto sector. Many temp firms also supply manufacturers with workers. Overtime and wages were both up, which means we're still generating income growth, even though overall gains in employment were tepid. On the downside, local government job cuts continued. Teachers were hit especially hard, as much of the pressure on state budgets is now being pushed on down to municipalities. Separately, retail employment fell sharply because of losses at department and electronics stores.

Unemployment held at 8.2 percent, but the household survey did show more employment gains than the payroll survey. This is likely due to small businesses or the self-employed who do not show up until much later in the payroll survey. That said, there is nothing very exciting in the household survey; we are still treading water at best, with too many people being pulled down by the undercurrent of persistently high unemployment.

Bottom Line: The June employment report was still too cool for an economy that is tepid at best. This data alone may not be enough to prompt the Federal Reserve to engage in QE3 (a third round of quantitative easing), but it will be on the table and up for serious consideration at the next Fed meeting on July 31/August 1.

Cross-posted from the Economics Minds blog.