Goldman On The Catastrophic NFP Number: "Basically No Positive Offsets To The Poor Headline Results"

Ladies and gents: presenting Jan Hatzius.

Across The Board Weakness

BOTTOM LINE: A very disappointing Employment Report. Suggests some downside risk to our second half growth forecasts.


1. Nonfarm payroll employment increased by 18k in June, significantly less than expected. Employment growth for the previous two months was also revised down by a net 44k. Weakness was broad-based across industries: manufacturing employment rose by just 6k, after declining 2k in May; total private service-providing employment increased by 53k, down from +70k in May; the temporary help component fell by 12k after falling by 2k in May; and government employment declines by 39k after a 48k drop in May. Other details from the Establishment Survey also disappointed: average hourly earnings were unchanged month-over-month; the average workweek declined; and the diffusion index representing the percent of industries reporting job gains fell to 53.4% from 54.1%.

2. The unemployment rate rose unexpectedly by one tenth to 9.2% in June, despite a one tenth decline in the participation rate to 64.1%. Household employment declined sharply by 445k, pushing down the employment-population ratio by two tenths to 58.2%. The U-6 measure-which captures other types of labor underutilization-increased by four tenths to 16.2%.

3. The preliminary June reading for our Current Activity Indicator (CAI) was 1.2%, down from 1.7% in May (Technical note: we made a small methodological change to the CAI, separating the aggregate hours index into its two components--private payrolls and average weekly hours).

4. Overall the June Employment Report was quite disappointing, with basically no positive offsets to the poor headline results. The best we can say is that other data have shown better signs in recent weeks, including jobless claims, chain-store sales, gasoline prices, and auto production. Nevertheless, the weak trend in payroll employment indicates some downside risk to our second half growth views.

We will bring you details of the Joe LaVorgna pink slip as soon as it hits the tape.


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