Jobs report doesn’t offset U.S. recession fears
The nation added 117,000 jobs last month and the official unemployment rate dipped slightly, but the underlying data in the latest government report provided more evidence of the economy’s continuing weakness and stoked fears of another recession.
The new jobs figure — stronger than many analysts had predicted — was the highest tally since April and helped pull the July unemployment rate down to 9.1% from 9.2% in June, reversing three straight months of increases.
But welcome as the gains were Friday, they still left the average job growth over the last three months at just 72,000 — about half of what’s needed each month to keep pace with the growing population of workers.
More troubles for the economy came late Friday when the Standard & Poor’s rating agency downgraded U.S. credit rating for the first time in modern history to AA+ from the company’s top AAA level.
The drop in the jobless rate masked further long-term deterioration in the nation’s labor market: The decline resulted primarily from hundreds of thousands of workers dropping out of the job market, apparently too discouraged or seeing few opportunities worth chasing.
Under the Labor Department’s statistical rules, these shadow unemployed are not counted among the 14 million officially listed as out of work.
Friday’s report showed that the population of people age 16 and older rose 1.8 million over the year ended last month. But during that same period, the total labor pool — those working or looking for jobs — dropped 400,000.
“It’s unprecedented. There are a lot of people who could be working who are not,” said Sophia Koropeckyj, a labor economist at Moody’s Analytics. “We’re barely holding on to the recovery. It wouldn’t take much for us to drop into recession.”
Many analysts and investors were bracing for the worst on the jobs report after Wall Street’s huge sell-off Thursday in the wake of a series of grim U.S. economic indicators and deepening debt troubles in Europe.
The numbers in Friday’s jobs report were not disastrous and, in that sense, almost brought a sigh of relief.
Seeking to strike an upbeat note, President Obama said: “Things will get better. And we’re going to get there together.”
Obama said he hoped that after the August recess, Congress would work in a more constructive way than it did on the debt ceiling.
“I want to move quickly on things that will help the economy create jobs right now,” he said. “The more we grow, the easier it will be to reduce our deficits.”
But few seemed any more reassured about the overall state of the economy or the way forward.
“The current situation looks extremely bad,” said Roger Farmer, head of the economics department at UCLA.
Stocks swung wildly throughout Friday’s session. The Dow Jones industrial average of 30 blue-chip stocks, which lost nearly 513 points Thursday, regained a modest 61 points Friday. It is down about 11% from its spring high.
Unless there’s a sharp upturn in confidence, Farmer said, the waning sentiment among investors is certain to produce a negative wealth effect, a situation in which consumers, feeling poorer from paper losses in declining stocks, cut back on spending.
That would further pull down the broader economy — and with it, employment. Farmer sees a 50% chance of the U.S. falling into recession in the next six months.
Both the officially unemployed and the shadow-unemployed constitute a major and apparently growing drag on the economy as a whole and on those who do have jobs.
The cost of unemployment insurance, food stamps and other government safety net programs remains high. Equally important, the unpaid taxes of the jobless must be made up in the form of reduced government services, higher deficits, higher levies on those still employed, or some combination of the three.
Jim Chamberlain, a volunteer at Forty Plus of Greater Washington, D.C., a job networking and support group for professionals, sees some of the unemployed going back to school, others retiring and still others just walking away from an unforgiving labor market.
It’s hard to know how they’re holding up, he said. “The folks who drop out aren’t visible.”
Labor Secretary Hilda Solis took note of the large numbers leaving the job market. “We want them to come back; we don’t want them to be discouraged,” she said, adding that the government has one-stop centers to help workers in their job search.
There were a handful of encouraging signs in Friday’s report.
Factories boosted hiring last month, up 24,000 from June, with payrolls in the important auto and car parts manufacturing sector accounting for half that rise. The hiring spurt suggests that the supply-chain disruptions from the Japanese earthquake and tsunami are letting up, said Dan Meckstroth, chief economist for the Manufacturers Alliance/MAPI trade group.
Meckstroth said demand for cars, high-tech products and business equipment should help keep factories humming in the second half of this year, but he cautioned that “manufacturing is not known for adding jobs.”
Healthcare businesses continued their expansion in July, adding 31,300 to their payrolls as employment at hospitals rebounded with 14,000 new jobs, despite signs of increased cost pressures at medical centers.
Retailers added nearly 26,000 jobs over the month; car dealers and health and personal care stores bulked up. Professional and business services grew by 34,000 jobs, though hiring by the temporary-help industry — a harbinger of job growth — was flat.
The Labor Department’s report also revised June’s figures to show that 46,000 net new jobs were created, instead of 18,000. And May’s payrolls about doubled, to 53,000, in the new calculations.
The so-called labor participation rate — those with jobs or actively looking for work — fell to a three-decade low of 63.9%. In addition, an estimated 8.4 million part-time workers can’t find full-time jobs.
State and local government payrolls continued to shrink in July, shedding 39,000 jobs, including 12,000 more teaching and other positions at local schools.
The natural disasters in Japan were seen as two of several factors, along with the spring surge in oil prices and the bruising political fight over budget deficits, that weighed on business confidence and hiring.
Federal Reserve Chairman Ben S. Bernanke and other economists have said these drags should fade and thus pave the way for a firmer recovery.
But even if those constraints ease, there are other, longer-lasting forces that could curb business and consumer sentiment — and job growth. They include the widening debt problems in Europe, political instability in the Middle East and fiscal austerity measures in the U.S. and Europe.
At the end of this year, Social Security payroll tax cuts for workers will expire, as will extended benefits for millions of unemployed people. Unless extended, both will further constrain what has been disappointingly weak consumer spending.
