Weak job creation slows recovery

Last Updated 06 July 2010, 13:09 IST

The United States added just 83,000 private sector jobs in June, according to the monthly statistical snapshot released by the Labour Department.

The unemployment rate declined to 9.5 per cent, from 9.7 per cent in May. But that was a largely illusory decline, as 652,000 Americans left the work force. Over all, the nation lost 125,000 jobs in June, but those losses came as temporary federal census workers headed for the exits.

With the economy slowing — housing sales plummeted, while earnings and hours worked ticked downward last month — the stakes grow larger, economically and politically. The next few monthly unemployment reports will unfold during the run-up to the midterm Congressional elections this fall.

Incumbents feel particularly precarious, and major economic decisions about financial reform, unemployment benefits, and aid to states still sit on their desks.

“We may have seen the best of employment for some time,” said Northern Trust chief economist Paul Kasriel, adding,  “In general, the economy is downshifting, maybe to stall speed, or just above stall.”

Even longtime optimists pulled in their horns a touch. While they pointedly distanced themselves from those economists who worry about a double-dip recession, or a stagnant and lost decade, enthusiasm was hard to detect.

“Obviously, it was a disappointing report,” said Economic Outlook Group chief global economist Bernard Baumohl. “And it comes on top of a whole lot of other economic indicators that painted a bleak picture for the country,” he added.

Baumohl predicted, as others did that this jobs report would add fuel to the fiery debate between deficit hawks and pump-primers in Washington. He favoured government intervention, but he tended toward the view that it no longer made as much difference.

“Government spending prevented the United States economy from tipping into a depression,” he said and added, “But beyond that, the government cannot, short of war, get private companies to increase hiring if they don’t want to.”

Just as May’s jobs report appeared deceptively robust, swollen by 411,000 workers hired by the federal government to help with the census, so the June report appears deceptively anemic, as the government shed 225,000 of those workers.

Private sector

Signs of strength could be spotted. The 83,000 private sector jobs created in June more than doubled the count in May. In the first six months of 2009, the nation lost 3.7 million private sector jobs; during the first six months of this year it gained 590,000.

Manufacturing continued a modest revival, as plants added 9,000 jobs, bringing the total for such jobs to 136,000 since January (manufacturing shed two million jobs early in this recession). Amusement, gambling and recreation businesses added 28,000.

Health care inched up by 9,000, for a 12-month gain of 217,000 jobs. And professional firms continued to add temporary workers, 21,000 last month. In past recessions, such hiring often was a precursor of permanent hires.

More jobs needed

President Obama offered restrained applause for the jobs report even as he acknowledged the economy remained weak. “Make no mistake — we are headed in the right direction,” Obama told reporters before boarding Air Force One to fly to West Virginia for the funeral of Senator Robert C Byrd. “We’re not headed there fast enough for a lot of Americans. We’re not headed there fast enough for me either,” he had said.
Indeed, the economy needs to add about 130,000 jobs each month just to keep pace with new workers entering the market.

The labour pool is packed with 15 million Americans looking for work, and state and local governments cut another 10,000 jobs in June, cuts likely to accelerate this summer.

The weeks leading up to Friday’s report offered a grim rat-a-tat-tat of statistics pointing to a slowing economy. Auto sales fell, housing sales plunged and unemployment claims rose to a peak higher than is normal for an economic recovery.

Economic recovery

And Friday’s labour data offered many more signs of slippage. The labour-force participation rate — that is, the number of workers counted as participating in the national economy — fell by 0.3 percentage point. And the picture remained unyieldingly grim for the long-term unemployed. The median duration of unemployment rose to 25.5 weeks in June, from 23.2 in May.

More and more Americans are being left behind. In June, about 2.6 million people were marginally attached to the labour force, a rise of 415,000 from a year earlier. This means they are not counted in the unemployment numbers, but they have looked during the last year and want a job.

The overall unemployment rate, incorporating all such Americans, stood at 16.5 per cent. “This economic recovery does not have enough momentum to sustain on its own without government help,” said California State University,  Channel Islands economist Sung Won Sohn, who is also a former chief economist at Wells Fargo.

Hiring scenario

“Businesses are reluctant to hire for fear of a double-dip recession. Without jobs, the economy can’t grow, limiting job growth and spending.”

The president’s Council of Economic Advisers chairwoman Christina Romer, described the economy as a ship on stormy global waters. European nations are slashing budgets, China’s economy has cooled and the stock markets are caught between indigestion and serious worries.

Yet the United States labour force is larger than a year ago, she said, and the jobless rate is lower. “Two months ago, the world was getting giddy and it was better than anyone expected,” she said in an interview. “In the past two weeks, the news is on the other side, worse than expected.”

This is not, she said, a normal recovery “because it was not a normal recession. There are some strong headwinds”.

The velocity of those headwinds, particularly around jobs, could imperil Democratic control of the Senate and House. Several weeks ago, Vice President Joseph R Biden Jr christened this “Recovery Summer”, emphasising the jobs created by the $787 billion economic stimulus measure passed in February 2009.

Losing benefits

Now some wonder if those gains can be sustained. The national economy looks like a slack muscle. Prices and wages are dormant or falling, banks are holding tight to credit, consumers appear fatigued and the stock market is tumbling. And 3.2 million workers are losing their unemployment benefits because Congress turned down President Obama and declined to authorise an extension.

Economist and New York Times columnist Paul Krugman warned recently of the risk of another Great Depression. Many economists disagree with that view, saying that the sluggishness would end this fall or winter.

Others, however, join Krugman in warning that stagnation could loose another wolf: deflation. “In the winter of 2009, I said the risks are for inflation, not deflation,” Kasriel noted.

“In the summer of 2010, I think the risks are now tilted toward deflation. We run the risk of entering a really bad environment.”

(Published 06 July 2010, 13:09 IST)

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