The labor force participation rate is falling roughly in line with productivity resulting in what I’ve been describing as an L shaped recovery as we remain grossly overtaxed for the size govt and credit conditions we currently have.

Editors note: this was originally posted without crediting Karim as the author of the comments below.

Karim writes:

Better than feared and most importantly, lending some consistency with other labor market indicators (claims, ADP, ISM).
Much of the details reversing last month’s across the board weakness.

  • Payrolls rise 117k: Private payrolls rise 154k
  • Net revisions +56k (June report revised from 18k to 46k)
  • Unemployment rate drops from 9.2% to 9.1%
  • Avg hourly earnings rise 0.4% (prior 2mths 0.0% and 0.4%)
  • Hours index rises 0.1% (-0.2% last mth)
  • Median duration of unemployment falls from 22.5 weeks to 21.2 weeks
  • U6 measure falls from 16.2% to 16.1%
  • Part rate falls from 64.1% to 63.9%
  • Diffusion index rises from 56.6 to 58.6 with the following industries all showing net change of 10k or more jobs on the month
  • Education, Construction, Manufacturing, Retail, Finance, Temp help

Claims in low 400s and ISM employment in low-to-mid 50s consistent with private payrolls in 100-150k/mth range.
Also with consistent with Fed forecast of modestly above trend gwth and slow decline in the unemployment rate.

A risk to the outlook going forward is the ‘financial accelerator’ factor as coined by Bernanke and Mishkin. Growth in H1 was at least associated with supportive financial conditions (basically credit spreads and equities). Too many more days like yesterday will offset whatever comfort they get from reports like today’s.