The US labor market remains weak, but the pace of jobs destruction appears to be slowing. US July unemployment and nonfarm payrolls (nfp) will be released on Friday August 7th. The July unemployment report is expected to show that the pace of US job losses is slowing as the recession is nearing an end. June nfp rose 102k to 467k, the trade had expected a reading of 365k. Seasonal factors contributed to the bigger than expected decline in the June nfp and may contribute a smaller npf rise in July. The June unemployment rate rose to 9.5% from 9.4% in May. This was the highest level for US unemployment in 26 years. The US labor market remains structurally weak despite recent data which suggest the pace of jobs losses has slowed. According to the June labor report the average work week and average hourly earnings sank to the lowest level on record. Michigan became the first state in 25 years to suffer an unemployment rate above 15% and unemployment topped 10% in 15 states. 2 million jobs have been lost since the US Congress passed a 787 bln stimulus plan. The unemployment rate has risen by 4.6% and 7.2 million jobs have been lost since the start of the recession in December 2007.
July non farm payrolls are expected to fall by 320k with the unemployment rate rising 0.1% to 9.6%. The July ADP private sector employment report came in worse than expected at -371k. A reading of -345k was expected. The ADP report suggests that US July nfp payroll will fall by 356k and that US labor sector remains weak.
Friday's unemployment report may be distorted by seasonal adjustments for automaker layoffs. The labor department adjusts the employment data for temporary job losses that usually occur in the summer partly due to auto maker plant closings. Because many auto plants closed in May as part of the government bailout plan and employees were laid off, the labor market data reflects less job creation at the beginning of summer. The seasonal adjustments may show that fewer jobs were lost in July. This is partly why some analysts expect the July nfp payroll to fall as low as -200k. Because of the seasonal adjustments the July unemployment report may not give a clear picture of the current state of labor market. The labor data should give a more accurate read of the US labor market in the fall.
Global equity markets and commodity markets have rallied supported by speculation that the US and global recession is nearing an end. Even as the recession appears to be ending the US unemployment rate is not expected to peak until the end of 2009. According to the Fed, the unemployment rate will top 10% by year-end and remain elevated into 2011. Most businesses are still not hiring. The weak labor market may hinder US recovery and the expected economic rebound will likely be weak. Nfp is expected to continue declining into year-end but the US faces the risk of the jobless recovery.
How Friday's unemployment report impacts the USD will depend on whether the report fuels continued improvement in risk appetite. The USD continues to trade inversely to the direction of equities and risk sentiment.