08/03/2012 09:57 am ET Updated Oct 03, 2012

July Jobs Report: First Impressions (Updated)

Employers bucked the recent slowing trend in hiring in July, sending payrolls up by 163,000, the largest payroll gains since February, according to this morning's jobs report from the BLS. The private sector was up 172,000, with most industries, including manufacturing, adding more jobs than in the prior few months.

On the other hand, the Household Survey, from which the unemployment rate is drawn (the payroll data come from a survey of workplaces), told a less optimistic story about July, with unemployment ticking up slightly and the share of the population employed falling.

So, what is one to make of such a tale-of-two-surveys?

- Don't read too much into one month as one month does not a new trend make. July's reversal of the recent downshift in payrolls is very welcomed, but let's sees if it hangs around.

- Regarding employment growth, the payroll survey is a lot more reliable on a monthly basis than the household survey -- its sample size is much larger and while all these monthly data are noisy, the payroll is less so than the household. (The household survey goes to 60,000 households; the establishment survey, to about 140,000 businesses and government agencies representing about 490,000 establishments.)

- Re: payrolls, when I find myself scratching my head about the underlying trend in a series that's jumping around, I take an average, and the jumpier the monthly changes are, the longer the average. So far this year, average monthly payroll growth has been about 150,000; over the past three months, the average has been about 100,000.

- Those growth numbers are about what it should take to keep the jobless rate around where it is, though continued months like July and it should start coming down.

- Average hourly earnings are up 1.7% over the last year, which is actually the same rate as inflation (that's June12/June11 for inflation since we don't have July's price report yet). Flat real paychecks are better than falling paychecks, but that's a slow pace of wage growth, consistent with all the slack in the job market.

- Bottom line: a nice pop on payrolls. Probably the most important thing to take from this morning's report is that the downshifted trend of the last few months may not be as baked into the cake as we feared.

But keep your powder dry on this one. There are lots of other economic headwinds out there, not least of which is a GDP growth rate below trend, and that's usually associated with weaker job growth numbers than we saw from the payroll report.

Update (11:00AM EST, 8/3/2012):

Diagnosis: A Bad Loop

Though payrolls showed a bit more muscle in July -- a very welcomed development if it persists -- the expectation is for the economy to continue to slog along, slowly climbing out of the Great Recession.

The most frequently cited reasons for the continued weakness in the job market are Europe and budget uncertainty. From this AM's Washington Post:

Given the government budget conflicts and the recession in Europe, the lackluster state of the U.S. economy seems likely to persist, economists said, and keep the economy in the doldrums.

From this AM's New York Times:

Economists are not expecting job growth to pick up much anytime soon. Concerned about the European debt crisis and the draconian American fiscal tightening scheduled for the end of the year, companies are starting to retrench.

Sure, those are real, ongoing concerns, though I think the extent to which budget madness -- and yes, that's a good description of the fiscal cliff -- is slowing the economy is very speculative (not saying it's nothing, but it's pure anecdote).

I actually think the bigger story is the negative feedback loop between weak job growth, weak paychecks, weak consumer spending, weak demand, weak job growth -- and you're back at the start of the loop.

To break the loop, in the near term we need to target jobs, not debt and deficits. Exhibit A in terms of proving that assertion, and from the perspective of what NOT to do, is Europe and the UK. Fiscal policy, however, is frozen both there and here.

That leaves monetary policy, but even were the Fed willing to push harder, there's a real concern they're pushing on a string. Their prime target is interest rates, and the cost of borrowing isn't what's holding back hiring. That would be demand, and more of it would actually give the Fed's policies more traction, which is why you constantly hear gentle Ben asking Congress for some fiscal help (i.e., jobs measures) to complement his team's monetary juice.

But Congress isn't listening, and therein lies the problem.

This post originally appeared at Jared Bernstein's On The Economy blog.