The jobs report this morning was much better than expected and marks a very serious improvement from where we were just a few months ago. Not only did the number of jobs lost fall to 247,000 in July, but the unemployment rate (U-3) declined to 9.4% from 9.5%. The consensus expectation was that the number of jobs lost would be about 325,000 and that the U-3 unemployment rate would be 9.6%.

In addition, there were also positive revisions to both June and May, with “only” 303,000 jobs lost in June rather than the 322,000 originally reported. May was revised to a loss of 443,000 jobs from a loss of 467,000.

While it is hard to celebrate almost a  quarter of a million Americans being thrown out of work in a single month, it sure beats 670,000 jobs we were losing on average from November through March. It is just one third the peak job loss of 741,000 in January. It is also the first time the unemployment rate has fallen in 14 months.

The graph below (from shows the history of the unemployment rate and the year-over-year rate of job growth. Keep in mind that the job losses have been going on for well over a year now, so the starting point is depressed now much more than it was in earlier recessions.

The decline in the unemployment rate was also seen at the broader U-6 level, which includes people working part-time because they can’t get full-time work and “discouraged” workers. It fell to 16.3% from 16.5%.

The overall decline in the U-3 unemployment rate was seen in almost all major demographic groups with the exception of Hispanics, where the rate ticked up to 12.3% from 12.2%. However, in June Hispanics saw a large improvement from the May level of 12.7%. In July, the unemployment rate for men fell to 9.8% from 10.0%, for women to 7.5% from 7.6%, for whites to 8.6% from 8.7% and for blacks to 14.5% from 14.7%. Teens saw their unemployment rate fall to 23.8% from 24.0%.

Other more subtle measures also showed some improvement. The average work week rose to 33.1 hours from 33.0 hours. That might not sound like a big deal, but multiply that 0.1 hour across the 131.5 million workers in the country, and it is the equivalent of tens of thousands of jobs.

In Manufacturing, the average workweek increased by 0.3 hours to 39.8 hours. This is an encouraging sign, since when business picks up the first thing an employer is likely to do is increase the hours of its existing staff (especially if those hours had been drastically cut back) rather than go out an hire new people.

In terms of the length of unemployment, the news was mixed. The median duration of unemployment fell a rather dramatic 2.2 weeks to 15.7 weeks, partially reversing the huge rise of three full weeks in June. However, the average duration rose to 25.1 weeks from 24.5 weeks.

The actual total number of people who are unemployed fell to 14.46 million from 14.73 million in June, and we are below the 14.51 million level in May. There has been a big decline in the number of mid-duration unemployed, with those out of work between 5 and 14 weeks falling to 3.557 million from 4.066 million June, and those out of work between 15 and 26 weeks declining to 2.916 million from 3.452 million. There was a small increase in the number of short-term unemployed, rising by 29,000 to 3.233 million.

The big problem is the number of long-term unemployed in this cycle. The number of people who are out of work for 27 weeks or more is now at 4.965 million, up from 4.381 million in June and from 1.718 million a year ago. After 26 weeks, regular state unemployment benefits run out. Some of these people are receiving extended benefits that were part of the stimulus package.

However, those will not last forever, and having no income whatsoever is a pretty good path to some serious poverty. Those who claim that the stimulus bill is not helping should go talk to someone who has been out of work for 30 weeks now, and ask if it has made a difference in their lives.

Before April of this year, the number of long-term unemployed had never exceeded of the number of short-term unemployed. Now we are at 154% of short-term unemployed, up from 137% in June. The graph below (also from shows the history of long-term unemployment both in raw numbers and as a percent of the labor force.

Still, before getting too giddy about this report, keep in mind that since the recession started the economy has lost 6.66 million jobs — 5.7 million over the last year alone.

Furthermore, even though we are losing jobs at a slower pace, the losses are very widespread by sector. In July we lost 128,000 goods producing jobs, including 76,000 in construction and 52,000 in manufacturing. The service sector lost 119,000 jobs including 44,000 retail jobs, 38,000 in professional and business services and 22,000 in transportation. The financial services industry lost 13,000 jobs in the month.

The only places adding jobs were health care (+20,000), leisure and hospitality (+9,000) and government (+7,000).  All in all, it paints a picture where the layoffs are stopping but the hiring has not yet begun. Part of the reason is for the participation rate of the population in the workforce has fallen, with the size of the workforce (employed plus unemployed) actually falling to 154.4 million from 154.9 million in June, despite a 220,000 increase in the civilian population.

As a result, the participation rate fell to 65.5% from 65.7% in June and 65.9% in May. This sort of casts a shadow on things, since if people are really optimistic about the job market they tend to join the labor force, not quit it (for example, decide not to take early retirement or a stay-at-home mom deciding to get a job). The overall employment rate continues to fall, down to 59.4% from 59.5% in June and 62.3% a year ago.

Overall, I found this to be a very encouraging report, especially when you consider where we were coming from. Back when the debate over the Stimulus Bill was going on, I don’t think anybody thought we would be able to cut the rate of job losses by 2/3 in just six months.

We are not in a recovery yet, but we are getting a lot closer. This has the potential to be good for a huge cross-section of companies. More jobs means better credit performance (relative to what it otherwise would be) for banks like J.P. Morgan (JPM), it means better sales for retailers from Wal-Mart (WMT) to Saks (SKS). It means higher demand for industrial metals like copper, benefiting miners like Freeport McMoRan (FCX) and most likely higher demand for energy, benefiting everyone from Exxon (XOM) on down.
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