Finally, there is better news for the economy.
In a surprise to most economists, America’s unemployment rate dropped in July – to 9.4 percent from 9.5 percent in June. Also, employers axed 247,000 workers, the lowest level since August of last year.
The numbers, released Friday by the Labor Department, probably indicate that the US economy is moving out of the longest recession in post-World War II history, economists say. They caution that the unemployment rate may nudge higher in future reports, but still, the current shift in layoffs is good news.
“Obviously, losing 247,000 jobs is nothing to celebrate, but in the context of the year as a whole, an improving trend is under way,” says Richard DeKaser of Woodley Park Research, an economic consultancy in Washington. “We appear to be transitioning from recession to recovery.”
In June the economy shed 443,000 jobs.
Although most sectors of the economy continued to lose jobs last month, there were fewer layoffs than in previous months in manufacturing, construction, financial services, and professional services. Leisure and hospitality actually posted job gains.
Moreover, it appears that businesses are beginning to give workers longer shifts: The number of hours worked improved compared with June. Employers also increased wages slightly.
The report comes before the Federal Reserve meets next Wednesday to discuss monetary policy. “The [stock] market may worry about inflation and what the Fed will do,” says John Canally, economist at LPL Financial in Boston.
“The Fed needs to make sure we turn this corner,” he says. “The Fed must make policy as a pessimist, because the worst thing they could do is raise rates and knock the economy back down.”
Although job losses are beginning to slow, economists don’t expect to see the economy as a whole add jobs until next year. “Actual job gains are still some months off,” Mr. DeKaser says.
In fact, Mr. Canally says, it’s possible that the unemployment rate might go back up. The Federal Reserve, for one, has predicted that the unemployment rate is likely to go over 10 percent this year. “I don’t think you can say yet that we’ve reached the peak,” Canally says. “But we can say the labor market is stabilizing.”
One reason for the slight improvement in the unemployment rate might be because of some progress in Detroit. In June, the automakers laid off thousands of workers as car sales dried up. Then, last month, they started to recall workers as they retooled their plants. Now, they are starting to ramp up production as the “Cash for Clunkers” program depletes their inventories.
Yet the improvement in the job numbers goes beyond Detroit. “There are fewer job losses everywhere,” Canally says. “In fact, there are job gains in leisure and hospitality, which may mean people are starting to open up their pocketbooks and go to hotels and water parks,” he says.
Despite the slower job losses, there were 14.5 million people out of work in July, the Labor Department reports. If those who have given up looking for jobs or are working part time are included in the unemployment rate, the figure would have been 16.3 percent, according to the report. That is a slight improvement from 16.5 percent in June.
“Long-term unemployment reached epic proportions in July, climbing to disturbing levels that surpass all records,” said in a statement Christine Owens, executive director of the National Employment Law Project, an advocacy group for the unemployed.
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