Jobs Report: A Blow to Optimism
Don't get your hopes up. That's the signal the job market seemed to send economic pontificators on July 2, as U.S. employers cut a larger-than-expected 467,000 jobs in June, according to the Labor Dept. The U.S. unemployment rate hit a 26-year high of 9.5%. "Today's Labor Dept. report again indicates how the recovery continues to elude the job market," says Christine Owens, executive director of the National Employment Law Project, an advocacy group for low-wage and unemployed workers. "The jobs recession has reached extreme levels." It's a decidedly more gloomy report than the one in May, which showed that the economy lost 345,000 jobs during that month, far fewer than the 550,000 jobs economists had expected. May marked the fourth consecutive month of slowing job losses, leading some economists to think the trend would continue.
The Worst Has PassedEconomists had predicted June losses of 363,000. Instead, job cuts were deeper than May and spread across major industries, from construction and manufacturing, to professional and business services.
To be sure, the worst of the layoffs have passed. Even June's cuts are a far cry from the depths of the recession, most notably January's 741,000 job losses. Moreover, a handful of industries continue to add jobs: Education and health services added 34,000 positions last month and 47,000 in May. "The economy is now turning the corner away from recession and toward a recovery," says Bernard Baumohl, chief economist of the Economic Outlook, a Princeton (N.J.) forecasting firm.
But the June jobs report contains worrying signals. The average workweek fell 0.1 hours, to 33 hours, the lowest ever recorded for data that go back to 1964. And workers saw no wage gains in June, with average hourly earnings flat at $18.53. (Average hourly earnings increased by just 2.7% over the past 12 months, the smallest annual increase since 2005.) Average weekly earnings actually fell to $611.49 in June from $613.34 in May.
Other bad news includes an in increase of 433,000 in the number of long-term unemployed, to 4.4 million, also an all-time high. That means 3 in 10 unemployed people have been jobless for 27 weeks or more. If laid-off workers who have given up looking for employment or have settled for part-time work are counted, the unemployment rate for June was 16.5%, the highest recorded for data going back to 1994.
White-Collar CollapsePerhaps most staggering were the losses in professional and business services. Payroll employment in that sector declined by 118,000 in June, about twice the rate of May. Within this sector, employment in temporary help services fell by 38,000 in June, a sharp drop from just 6,500 losses in May. The temp industry—which economists see as a harbinger for economic trends— has lost 848,000 jobs since the start of the recession.
"It's a negative surprise," says Tig Gilliam, CEO of the employment firm , about the job loss numbers. "It seems last month's [temp worker] numbers were an aberration, and declines will stay steady." Gilliam points out that some areas of temp work—such as mortgage-processing and bill-collections work—are bucking the trend and growing. And he says he is heartened that clients are talking less about layoffs and more about preparing to add jobs back, but "that's more sentiment than action at this point."
No wonder, then, that workers are pessimistic. Fully 40% of U.S. workers believe the recession will continue for another full year, and potentially into the third quarter of 2011, according to a recent survey by Adecco Group. By contrast, Federal Reserve Chairman Ben Bernanke predicts the recession will end this year, and many economists say the economy will start to grow again within the current July-September quarter.
Drop in ConfidenceUnsurprisingly, as paychecks shrink or disappear, consumers are more hesitant to spend. On June 30 the Conference Board's Consumer Confidence Index unexpectedly slid after three consecutive months of gains, with a greater number of respondents expressing worries about the job market. In this context, it is increasingly clear the U.S. consumer won't lead the economy out of its doldrums anytime soon.
The grim employment picture—coupled with a higher savings rate, continuing home foreclosures, and declining home prices—have led some economists to remain bearish. "Green shoots…are little more than noise on what is still a fundamental downtrend," says David Rosenberg, chief economist and strategist for Gluskin Sheff & Associates, a Toronto wealth management firm.
Gilliam says that overall the jobs report indicates the recovery will be "U-shaped" rather than "V-shaped." "We're bouncing along at the bottom of the U," he says. "The question is, when do we start making an upturn, and how much momentum does it have?"