July employment surprised, increasing 6,600, slightly more than offsetting June's 6,400 decline. The participation rate was a tick lower at 64.7 percent, leaving the unemployment rate unchanged at a lower than anticipated 6.8 percent.
The gain was in part time workers. They increased 23,900 while full time employment was down 17,300. In July, there were 19,000 more people employed in professional, scientific and technical services. Employment in this industry was up by 38,000 (2.8 percent) compared with 12 months earlier. Employment in public administration rose by 9,000. However, on a year-over-year basis, employment in this industry was down by 20,000 (down 2.1 percent). Employment fell by 10,000 in finance, insurance, real estate & leasing in July. Despite this decline, employment in the industry was up by 31,000 (2.9 percent) compared with 12 months earlier. The number of self-employed workers increased 41,000 in July, contributing to a year-over-year increase of 57,000 or 2.1 percent.
Employment dropped 12,200 in the goods producing sector although within this manufacturing shed 4,600. Construction recorded an 8,300 decline and natural resources off 2,000 but utilities added 3,300 and agriculture was off 600.
The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labor force.
As in the U.S., this report is used as an indicator of the health of the domestic economy. Employment trends and break-downs by industry groups highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.
The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.
The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.