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The Employment Situation, August

Nonfarm payrolls declined by 84,000 in August, and the unemployment rate rose to 6.1 percent, up from 5.7 percent in July. Downward revisions to June and July payroll numbers amounted to 58,000 additional losses for those months. This marks the eighth consecutive month of employment decline and the highest rate of unemployment since September 2003. The decline in payrolls and the rise in the unemployment rate were both larger than consensus expectations.

The diffusion index of employment change improved, moving up to 48.9 from 41.4 in July. However, given the overall weakness of the labor report, the rise in this index implies that employment losses are more concentrated in certain sectors. Furthermore, a reading below the threshold of 50 still indicates that more businesses are subtracting jobs than adding them.

The goods-producing sector shed 57,000 jobs in August, compared to July's slightly smaller loss of 48,000. These higher losses come entirely from manufacturing, as construction losses actually improved over the month, from 20,000 job losses to just 8,000. While residential construction continued to decline, nonresidential construction added 12,200 jobs in August.

Average Nonfarm Employment Change

The manufacturing sector shed 61,000 jobs last month, contributing a good portion of the 57,000 net jobs lost within goods-producing industries as a whole. Most of the sector's declines are explained by losses at durable goods firms, which totaled 55,000. In comparison, nondurable goods firms lost 6,000 jobs. The greatest losses in nondurables occurred in motor vehicles and parts, which dropped 39,000 jobs last month compared to July's loss of just 400. This is the biggest dip the auto industry has seen since July 1998. Excluding motor vehicles and parts, manufacturing lost 22,000 jobs last month, a smaller loss than July's loss of 37,700 or June's of 38,400.

With a payroll decline of 27,000, service-providing industries lost more jobs in August than in July, despite the government sector's larger contribution this month of 17,000 jobs. Education and health services, with 55,000 new jobs, continued to provide the only strength to service-providing industries, which lost 27,000 jobs as a whole. Education added 16,300 jobs, and healthcare and social assistance tacked on an even more impressive 38,100. All other major service industries shrank in August, particularly professional and business services (-53,000) and trade, transportation and utilities (-35,000). Within trade, transportation and utilities, wholesale and retail trade suffered the heaviest losses at 38,400. Temporary help services, considered a leading indicator of overall employment conditions, had yet another tough month in August, dropping 36,900 jobs in its worst decline since November 2001.

Labor Market Conditions

Average monthly change
(thousands of employees, NAICS)
2005 2006 2007 YTD
Payroll Employment 211 175 91 -76 -84
Goods-producing 32 3 -38 -74 -57
Construction 35 13 -19 -37 -8
Heavy and civil engineering 4 3 -1 -5 -2.0
Residentiala 23 -5 -20 -27 -18.6
Nonresidentialb 8 14 1 -5 -12.2
Manufacturing -7 -14 -22 -43 -61
Durable goods 2 -4 -16 31 -55
Nondurable goods -8 -10 -6 -12 -6
Service-providing 179 172 130 -2 -27
Retail trade 19 5 6 -25 -19.9
Financial activitiesc 14 9 -9 -6 -3
PBSd 56 46 26 -34 -53
Temporary help services 17 1 -7 -28 -23.5
Education and health services 36 39 44 54 55
Leisure and hospitality 23 32 29 4 -5
Government 14 16 21 19 17
Local educational services 6 6 5 3 0
Civilian unemployment rate 5.1 4.6 4.6 5.3 6.1
a. Includes construction of residential buildings and residential specialty trade contractors.
b. Includes construction of nonresidential buildings and nonresidential specialty trade contractors.
c. Financial activities include the finance, insurance, and real estate sector and the rental and leasing sector. d. PBS is Professional Business Services (professional, scientific, and technical services, management of companies and enterprises, administrative and support, and waste management and remediation services.
Source: Bureau of Labor Statistics.

The three-month moving average of private sector employment growth remains in the negative territory it entered back in January, sitting roughly unchanged from the previous report at -92,000. These private sector declines, though, have not yet reached levels as severe as losses during typical recessions.

Private Sector Employment Growth

As noted earlier, the unemployment rate jumped 40 basis points to 6.1 percent, the highest level it has been since September 2003. The rate had also experienced large jumps in the spring, particularly April to May, owing much to teenagers (16 to 19), whose unemployment rate jumped from 15.4 percent to 18.7 percent. August's increase is more worrisome, though, because it is an increase in the adult unemployment rate which accounts for it. The rate for people 25 years and older increased from 4.4 to 4.9 percent last month, while the rate for teenage workers fell.

Unemployment Rate

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