Payroll employment fell 467,000 in June, a bigger slide relative to the 365,000 drop expected within financial markets going into the report. This was up from May's surprisingly small drop of 322,000 (revised from the previously estimated -345,000) although still down from April's decline of 519,000. The household survey contained slightly less negative news about labour markets with the unemployment rate rising only 0.1 percentage point to 9.5% compared to expectations of an increase to 9.6%.

The weakness in employment was relatively broadly based with declines in employment in both the goods-producing sector (223,000) and in the service-producing sector (244,000). The decline in the former largely reflected weakness in both manufacturing (-136,000) and construction (-79,000). Most of the major services categories fell in the month, led by a 118,000 drop in the professional and business component.

Weakness in the labour markets was also conveyed by the drop in the overall workweek in June to 33.0 hours from 33.1 hours in May. As a result, the index of aggregate weekly hours, which shows the combined effect of both employment and hours worked, fell a sizeable 0.8% in June following a 0.3% drop in May. For the second quarter, this measure of labour supply fell an annualized 7.9% relative to the 8.9% drop in the first quarter. This implies only a modest improvement from the very weak conditions at the start of the year.

Weakening employment is still putting downward pressure on the average hourly earning measure, the key wage measure in the report, which was unchanged in the month. This contributed to the year-over-year rate dropping to 2.7% in June from 3.0% in May.

Today's report still suggests that weakness in labour market conditions are easing. The cumulative decline in employment from April to June of 1,308,000 is a marked slowing from the comparable figure for the first quarter of 2,074,000. However, with the economy still paring jobs and reducing hours worked, there continues to be the risk of a negative feedback loop kicking in. To counter this, fiscal and monetary policies expected to remain accommodative. Thus, today's report is unlikely to alter the Fed's current policy stance of maintaining Fed funds within a still very accommodative range of 0% to 0.25% for an extended period.

Employment June 2009