07/08/2011 09:39 am ET Updated Sep 07, 2011

June Jobs Blues

The June non-farm payroll numbers are deeply below consensus forecast. The Bureau of Labor Statistics (BLS) reports that non-farm payrolls expanded by 18,000 in June. The BLS narrow U-3 unemployment rate is now 9.2%; it was 9.1% after the May report. The BLS broad measure of unemployment, U-6 including involuntary part time workers and discouraged workers, rose to 16.2% in June from 15.8% in May. This is 85% below the Bloomberg and Dow Jones average forecasts for over 120,000 jobs. We also saw April and May jobs creation revised down. We have had 545,000 people added to employment across the period April-June 2011. These are significantly weaker numbers than the May report, +54,000.

We continue to see significant weakness in public sector employment, led by local public sector job losses. Public sector employment contracted by 39,000 jobs in June. Federal stimulus is declining and states and localities are feeling the pinch. State difficulties and budget issues are being passed along to municipalities. In June we continued to see heavy reductions in local employment, particularly education employees. Local governments reduced payrolls by 18,000 in June. 12,600 of these local job losses came in education. These declines are accentuated by the June end and July start of the fiscal year for most states and municipalities. The public sector lost 39,000 jobs in June with the federal government making a larger contribution than in recent months, reducing payrolls by 14,000. State and local governments have been shedding jobs for over 2 years.

Productivity in the first quarter of 2011 continued its increase. For the lived experience of American households, and consumption strength, we continue to see productivity rising more rapidly than hours worked. The good news is that Americans are working harder and producing more per hour. The more troubling news is that this is restraining the pace of new hiring. Our success at doing more with less has contributed to profit rebound and helped the economy. It has also allowed more profit and production rebound despite one of the most anemic employment recoveries in American economic history.

Compensation is rising, but less rapidly than prices. The BLS reported consumer price increases across 1Q2011 of 5.3% and compensation increases of 2.5%. It appears that the large pool of unemployed is having a depressive impact on wages. Once again, real wages are under pressures as increases in compensation remain below increases in the cost of goods and services. In June 2011 average hours and wages declined slightly.

We see restrained job and wage growth as contributing to widespread displeasure with the economy in polling and other general sentiment indicators. We are moving closer to the jobs market as it will inform perceptions of the economy in the primaries and eventual general election cycle 2012. Monthly jobs numbers are now economically and politically influential.