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Payrolls declined by 467k in June, a larger decline than the consensus (-365k) expected, while the unemployment rate rose to 9.5%, a smaller rise than the 9.6% figure market projected. The report on balance was weaker than expected, owing to the weak payroll print and a decline in the workweek. The main message is that last month’s slowing in the pace of payroll decline overstated the pace of improvement in the labor market; but the report does not fundamentally change the trend of gradual improvement.

There was a net revision of +8k to the prior two months, and despite the weaker print relative to May, the 467k payroll decline remains notably less than the roughly 691k average decline in Q1 09. The sharper decline in June payrolls compared with May’s 322k loss was focused in government (-52k vs. -10k last month), business services (-118k vs. -48k), construction (-79k vs. -48k), and leisure and hospitality (-18k vs. 18k). Within business services, the temporary help sector shed 38k, compared with -8k last month. Most other categories showed similar job declines to last month, with education and health the largest job gainer at 34k. The unemployment rate was 9.507% unrounded, and was held down by a fall in the participation rate to 65.7% from 65.9%, as the labor force shrank by 155k. The workweek fell to 33.0 from 33.1, although the manufacturing workweek increased to 39.5 from 39.4. Aggregate hours worked fell 0.8% on the month, and declined an annualized 7.9% in Q2 09, compared with 8.9% in Q1 09; the pace of decline in GDP moderated much more on the quarter, suggesting that productivity improved. Average hourly earnings were unchanged, and fell to 2.7% y/y from 3.0% in May, indicating that a rising unemployment rate is leading to softer wage growth.

US jobless claims continue to trend lower

Initial jobless claims fell to 614,000 in the week ending June 27 from a revised 630,000 in the week prior, roughly in line with expectations. The four-week moving average of initial claims edged lower to 615,250 from 618,000, consistent with gradual moderation in the pace of labor market declines. Continuing jobless claims dropped to 6,702,000 in the week ending June 20 from a revised 6,755,000. The four-week moving average of continuing claims edged lower for the first time since February 2008, suggesting that continuing claims have indeed peaked. Market expects these trends of moderation to continue as the economy returns to growth and labor market contraction slows.