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Economy
West Leads Way to Seventh Month of Job Losses in July
Economy

West Leads Way to Seventh Month of Job Losses in July

Gallup’s Net New Hiring Activity measure shows job market deterioration continuing in the West

by Dennis Jacobe

PRINCETON, NJ -- Gallup's Net New Hiring Activity measure shows the jobs situation improving a little in the South but continuing to deteriorate in the West.

Seventh Month of Job Losses in July

On Wednesday morning, ADP Employer Services reported that the private sector actually gained 9,000 jobs in July, creating some added optimism in the equity markets. Thursday morning, the Labor Department reported that jobless claims increased by 44,000 to 448,000 in the week ending July 26, deflating much of the ADP report's uptick in optimism about the jobs market. Friday morning, the Bureau of Labor Statistics will provide the government's report on job growth and the unemployment rate for July.

Gallup's Net New Hiring Activity measure, based on the views of about 8,000 employees interviewed in July, suggests that, contrary to the indications of the ADP report, job market conditions did not improve in July. That is, it appears that employers continue to be hesitant to add new employees and that job losses probably continued last month. In turn, it is likely that the unemployment rate increased to 5.6% or higher in July. It should be noted that while Gallup's Net New Hiring Activity tends to be highly correlated with jobless claims before seasonal adjustments, Gallup's data are not seasonally adjusted, so caution is warranted when comparing these results to the seasonally adjusted results that the government will report Friday morning.

Gallup's Net New Hiring Activity measure was initiated in January 2008. It is an effort to assess U.S. job creation or elimination based on the self-reports of more than 8,000 individual employees each month about hiring and firing activity at their workplaces. In order to calculate this measure, Gallup asks current full-time employees whether their employers are hiring new people and expanding the size of their workforces, not changing the size of their workforces, or letting people go and reducing the size of their workforces. Net new hiring activity is computed by subtracting the "letting go and reducing" percentage from the "hiring and expanding" percentage. The assumption is that employees across the country have a good feel for what's happening in their companies, and that these insider perceptions can yield a useful summary indication of the nation's job situation.

Net New Hiring Activity by Region

On a regional basis, the East is suffering from the continuing financial crisis. Many financial services firms have announced layoffs, but Gallup's Net New Hiring Activity measure suggests that the fallout has yet to be fully realized, with conditions in the East still looking better than those in the Midwest and West. Severance arrangements and increasing layoffs can be expected as the third quarter continues to unfold, sending the "letting go" percentage up and the "hiring" percentage even lower.

Net new hiring activity in the Midwest remains essentially unchanged over the past several months, suggesting that export activity may be mitigating further declines in what appears to be a generally weak job market across the Midwest. With many overseas economies slowing, it remains to be seen whether Midwest job market conditions can continue to avoid further deterioration later this year.

Net new hiring activity seems to have improved to some degree in the South during July. In part, this may reflect the generally better job market in this region at the beginning of the year and the relative deterioration of the jobs market in the South when placed in the context of the first six months of this year.

During July, net new hiring activity declined the most in the West. It may be that the sharp decline in housing activity and home values in this region of the country is having a disproportionately greater impact on job market conditions in the West compared to the rest of the nation.

Job Fallout Lags Economic Activity

Earlier Thursday, the Commerce Department reported its annual benchmark revisions to its estimates of U.S. economic growth, showing slower consumer spending and slower economic growth than previously reported -- with a decline of 0.2% in the economy taking place in the fourth quarter of 2007. It appears that all of the consumers who have been saying the economy is in a recession over the past many months have been more accurate than many of the pundits on Wall Street or even the preliminary government reports.

Given this context, the fact that Gallup's Net New Hiring Activity measure indicates that the job market shows no sign of improving may be even more important than whatever the report from the Bureau of Labor Statistics shows Friday morning. Labor market conditions tend to lag economic activity and this means the fallout of the slowing economy may not yet have been fully realized in the jobs market. Add in the end of the tax rebates, a depression in housing and autos, and a continuation of the consumer credit crunch and financial sector fragility, and even the recent easing of gas prices may not be enough to keep things from deteriorating further in the months ahead.

In the past, increasing unemployment has usually been a key factor in slowing consumer spending and the economy. To this point, the U.S. economy has been slowed by a housing and financial sector debacle. In the months ahead, job losses may once again assume their more normal recessionary role.

Survey Methods

Gallup is interviewing no fewer than 1,000 U.S. adults nationwide each day during 2008. The economic questions analyzed in this report are asked of a random half-sample of respondents each day. The results reported here are based on combined data of more than 8,000 interviews in January, February, March, April, May, June, and July. For results based on this sample, the maximum margin of sampling error is ±1 percentage point.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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