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Economic Forecasts

Dreary Unemployment Picture to Brighten

Job losses in July were expected. The question is what’s ahead for the rest of the year.

The forces dragging down job growth in recent months should abate in the second half of the year. Housing will emerge, gradually, from its post-tax-incentive pothole. Already reinstated are jobless benefits for the long-term unemployed, which disappeared in June and remained unavailable through July as Congress dallied on an extension. Plus concerns about the European financial crisis have diminished, though risks still loom.

By the fourth quarter, look for monthly net job growth of around 150,000 as the pace of economic expansion picks up later this year.

Downsizing of the decennial Census-related workforce more than accounts for the net loss of 131,000 jobs in July, following an even larger loss of 221,000 during June. But job gains elsewhere are negligible, and the job market recovery remains anemic. Earlier in the year, Census hiring ramped up steadily to 564,000 temporary workers by May. Two-thirds of those positions have since been shed. The Census drag will persist through year-end, but the bulk of downsizing will be over by September.

To get a better reading on underlying trends, the ex-Census tally is a better place to look, and the results here are not inspiring. After posting solid gains averaging 203,000 in March and April, private and non-Census government hiring over the past three monthly advances averaged just 13,000 -- not losses, technically, but just barely.

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Even the lack of an expected tenth-of-a-point increase in the 9.5% jobless rate isn’t especially encouraging, since it entirely reflects a drop in job seekers. With the expiration of jobless benefits for the long-term unemployed, workers lost their eligibility for the program and, with it, some incentive to describe themselves as “looking for work.” Hence, they appear to drop out of the labor force. With the reinstatement of benefits in August, these workers are likely to reappear as new job seekers, lifting the jobless rate this month.

On the whole, the job market slowdown mirrors developments in the economy at large. The year began with strong housing market gains and vigorous manufacturing activity, as firms hustled to replenish depleted inventories. Consumers also stepped up with heavy demand for energy efficient appliances, and rushed those purchases to beat the April 15 tax filing deadline. As tax incentives faded and unemployment benefits expired, economic activity waned in recent months, and job weakness is the result. Uncertainty surrounding the European financial crisis didn’t help, either, elevating uncertainty and scaling back risk-taking of all sorts, including payroll expansion.