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Posted at 04:30 PM ET, 07/08/2011

That awful jobs report


Can we find anything optimistic in Friday's dismal employment report, which said that the economy created only 18,000 jobs in June and that the unemployment rate crept up to 9.2 percent from May's 9.1 percent? Well, economist Mark Zandi of Moody's Analytics thinks he's located a bit of good news: All of the increase in unemployment occurred among people who voluntarily quit their jobs. This suggests, Zandi says, that job-quitters think the labor market is strong enough — despite the gloomy statistics — that they'll easily find a new job more to their liking.

Maybe. Or Zandi's upbeat news might be a statistical fluke. If you delve into the numbers, his trend exists only in the seasonally adjusted jobless figures. The raw figures (not altered for normal seasonal shifts) show higher unemployment in all categories. That's consistent with the rest of the report.

“I've been looking for the good news — and I can't find it,” says economist Nigel Gault of IHS Global Insight. Here's his short list of downbeat indicators from the report. All portray a weakening labor market:

- The length of the average workweek declined, from 34.4 hours to 34.3 hours.

- Average hourly earnings in the private non-farm economy were flat at $22.99, virtually identical to May's $23 (normally, hourly earnings rise a few pennies or more a month).

- Total private payrolls — the amount of wages and salaries paid out — fell for the first time since November 2010.

The weak employment report stunned many economists. Gault had projected a gain of 140,000 — 165,000 among private employers offset by a loss of 25,000 government jobs. Zandi was in the same range.

The actual: private payrolls up 57,000; government payrolls down 39,000. “It's as if the economy hit a brick wall in May,” said Gault. In the three previous months, payroll jobs had increased an average of 215,000; the May-June average was 22,000. Keep in mind that, with an expanding labor force, the economy needs 100,000 to 125,000 new jobs a month to prevent unemployment from rising. Reducing it requires even more job-creation.

It isn't clear what happened. Standard explanations for the economy's sluggish first half of 2011 cite three causes: bad weather (flooding in the Midwest); Japan's earthquake, which depressed auto production by disrupting supply chains; and high oil prices, which sapped consumer buying power. But all this was factored into the June job forecasts.

The question now is whether the meager job creation heralds prolonged stagnation. Many economists have predicted a rebound in the second half of the year: Zandi expects the economy to grow at a 3.5 percent annual rate, up sharply from the estimated 1.9 percent for 2011's first half; Gault is slightly below that. Both are sticking to their forecasts. They expect the negatives of the first half to reverse: lower gasoline prices will bolster consumer spending; restored supply chains will raise auto production; better weather will permit more construction spending.

But the bleak job market raises the specter of much worse. It could trigger a vicious circle. Here's how. Slow employment growth depresses consumer spending and confidence. Cautious consumers in turn cause companies to curb hiring and new investment, which feeds back into lower growth and confidence. Should this unhappy sequence unfold, it would surely transform the economic debate (do we need more “stimulus”?) and the 2012 campaign.

By  |  04:30 PM ET, 07/08/2011

 
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