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July Jobs Report Is Clear as Mud

By Deborah Solomon

Today's jobs report continues a perplexing pattern of mixed data that's confounding economists trying to divine the strength of the recovery and creating headaches for President Barack Obama. The numbers suggest a high degree of muddiness.

The economy continued to add jobs last month -- a 163,000 gain, bolstered in part by increased employment among automakers. That beat expectations of 100,000 jobs and continues 29 straight months of gains.

But the unemployment rate, the marquee number most Americans use to gauge the health of the labor market, ticked up to 8.3 percent from 8.2 percent. In reality, the number was largely unchanged -- it jumped just one-tenth of a percent from 8.217 percent in June to 8.254 percent in July -- but economically you want that number going down.

And there are some worrying trends behind the numbers. The labor participation rate -- the percentage of working-age people actually in the labor force --fell slightly to 63.7 percent from 63.8 percent. The so-called underemployment rate, which includes part-time workers who want full-time work and people who want jobs but have given up looking, increased to 15 percent from 14.9 percent. The number of "discouraged" workers -- those who have given up looking because they believe no jobs exist for them -- also increased to 852,000 from 821,000 in June.

Meanwhile, the already anemic 80,000 jobs created in June was actually lower, with the government revising the number to 64,000. In normal times the labor market needs to create more than 100,000 jobs per month to keep up with the number of people who want to work and that number is much higher now given the trough we're trying to climb out of. The Economic Policy Institute puts out this sobering statistic: At July's rate of growth it would take more than eight years to get back to full employment.

So what does this mean for the economy and for the potential for further Fed action? Economists are split, with some saying it shows light at the end of the tunnel and others saying it proves the recovery has stalled.

The Fed said this week it will "closely monitor incoming information on economic and financial developments," and Federal Reserve Chairman Ben Bernanke has said the Fed will look at "all the labor market indicators, including unemployment, including participation and other measures of labor market activity, and try to make a sense -- try to get a sense of whether or not the labor market is improving in a sustainable way."

By the time the Fed meets again formally on Sept. 12 and 13, there will be another jobs report and other economic data to consider.

Bernanke wondered aloud before lawmakers last month whether the labor market was "stuck in the mud." Given the absence of any fiscal tools to stimulate the economy and the coming battleover the so-called fiscal cliff of increased taxes and lower government spending, the Fed could decide to engage in a round of bond-buying to prevent the economy from slipping backward.

(Deborah Solomon is a member of the Bloomberg View editorial board. Follow her on Twitter.)

Read more breaking commentary from Bloomberg View columnists and editors at the Ticker.

-0- Aug/03/2012 15:02 GMT

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