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June's disappointing jobs report comes just in time for the upcoming Presidential nominating conventions. After the U.S. economy added just 112,000 jobs in the month, less than half what economists were expecting, President George W. Bush can write off hopes of restoring the 1.8 million private-sector jobs lost during his term before he faces the voters, says Economy.com Chief Economist Mark M. Zandi. On July 2, Zandi spoke with BusinessWeek E-Business Editor Timothy J. Mullaney about the June jobs report and what it portends. Edited excerpts of their conversation follow:
Q: How good is the jobs number?
A:une was a weak month for U.S. workers. It wasn't only the disappointing job gain -- it was also the cutback in hours worked and the paltry growth in earnings (see BW Online, 7/2/04, "June's Many Disappointments for Jobs"). Taken together, it was a difficult month for workers, particularly in the context of the last several months, when we had been getting much better numbers.
Q: What was so weak about it?
A:The manufacturing and construction industries were notably weak, which was disappointing because they had been creating lots of jobs earlier in the year. The quality of the jobs being created is still poor. The preponderance are in lower-wage industries where workers get very few benefits -- temporary help, restaurants, retailing, and certain kinds of health-care services.
Average hourly earnings rose 0.1%, and year-over-year they're up 2%, which is particularly weak given stronger inflation. Real [adjusted for inflation] average hourly earnings are falling.
Q: Manufacturing is moving backward. Is that especially disappointing, or was that expected?
A:It's disappointing that it actually turned south in June, and I suspect we'll see some gains in the next few months. But broadly speaking, we shouldn't expect manufacturers to be adding to payrolls in any meaningful way. They remain under substantial global competitive pressures, and when we look back in a year, three years, five years, there will be fewer manufacturing jobs than today.
Q: A lot of talk concerns the pace of this recovery compared to others. What does this report tell us about the Bush Administration's chances to get its job-creation record back into the black by the election?
A:Today's data suggest that the President won't be able to tell voters the economy has recovered all the jobs lost on his watch. If we had gotten another 300,000-plus number today, I think he could have felt confident. After today's number, that looks possible, but much less likely.
Q: How about private-sector jobs?
A:There's no chance. In June, private-sector jobs were 109.8 million. The peak was February of 2001, at 111.6 million. So we're 1.83 million away. There's no chance we'll regain those by Election Day, That will make him the first President since Hoover not to have added jobs on his watch.
A couple of forces have come together in the last few months that are weighing on the job market -- and on the economy more broadly. We're starting to see some weaker numbers in retailing, and investment numbers look a little on the soft side in the last month or two. If you look at [durable-goods] orders numbers, they've been down two months running. Investment spending will be up again in the second quarter, but not nearly as strongly as I would have thought a couple of months ago.
Q: Is this report bad enough to drive consumer confidence down?
A:By itself no. But with persistently higher energy prices, higher interest rates, and ongoing concern about terrorism and war in Iraq, it certainly does weigh on confidence. It makes it less likely voters will be unambiguously joyful on Election Day.
I don't think we'll create enough jobs by Election Day to, by itself, convince voters to reelect the President. He'll need something else from somewhere else. It has been a very difficult four years. The 5.6% [unemployment] rate sounds low, but if you add the people who are underemployed or have stopped looking, the underemployment rate is probably closer to 10%.
And if you're unemployed, you're stuck: The duration of unemployment is about as long as it has ever been. In June [the average] was 19.9 weeks -- it doesn't get much longer than that. The job market is improving, but it was in a deep hole, and it's unlikely to get out of it by the election.
Q: President Bush says he inherited a recession, so job losses aren't his fault. So did President Reagan. But by 1984, Reagan's economy had gained back all of its lost jobs. How fair and accurate is it for Bush to make this argument?
A:He did inherit the recession -- no doubt. But he has had four years to right the economy. So he can't say he has had no impact on how this economy has performed. He has to take responsibility for the economy's performance over his term. He clearly had a bum deal coming in, but he has had a lot of time and a lot of resources.
What's shocking isn't that the economy is improving -- it's that it hasn't improved a lot more. The policies of the last four years have helped the economy, just not to the extent we could have expected. They weren't designed to help the economy in the short term. They were designed to do other things.