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Job Losses Slow but Still Weigh on Economy
Reports Due Out on Hours Worked, Staffing Will Be Key Indicators of Recovery

By Neil Irwin and Annys Shin
Washington Post Staff Writers
Friday, August 7, 2009

After a terrible nine months, the pace of job losses finally appears to be slowing down, according to mounting evidence.

Analysts are expecting confirmation on Friday that the labor market is warming up this summer, as the Labor Department releases July employment data. Economists anticipate the report will show that the jobless rate continued to rise -- to 9.6 percent, from 9.5 percent -- and that employers will have shed 328,000 jobs. Those results, while horrible by normal standards, would be an improvement over the 467,000 jobs lost in June and would support the idea that the recession is ending.

The Labor Department said Thursday that 550,000 people filed new claims for unemployment insurance benefits last week -- down from 588,000 the week before and part of a slow downward trend in the barometer that dates back to March. Various regional surveys of businesses have also shown more promising evidence about the job market.

"There has been a slight improvement in attitudes by managers," said Paul Villella, chief executive of HireStrategy, a Reston-based employment services firm. "Hiring isn't quite here yet, but they feel like it's coming."

The big question hanging over the economy is whether companies that begin to crank up production levels will start hiring again. To assess whether that's happening, analysts will be looking beyond the headline numbers from Friday's report.

One key indicator will be the number of hours people are working. As the economy has deteriorated, companies have aggressively cut back workers' hours; the average workweek for production employees was 33 hours in June, the lowest on record. That means that even if employers are reluctant to make new hires, they have room to extend the hours of current workers to respond to growing demand for products. An increase in hours would be a sign of an improving economy.

Another hidden indicator will come from staffing firms. The report breaks out the number of jobs in employment services, which have been in free fall: The number of temporary jobs has dropped by 727,000, or 23 percent, in the past year, compared with a 4 percent drop in total employment.

If temp employment levels off or even ticks up, following 29 months of decline, it would be another sign that employers need more staff to deal with higher demand.

"Don't look at the headline number so much as the components," said Richard Yamarone, chief economist at Argus Research. "If we see an uptick in temporary employment, then you know we're at least getting close to having job growth."

The recession has been marked by epic job losses, and even optimists think the unemployment rate will continue rising toward 10 percent or more this year and remain elevated in 2010 and beyond. The jobless rate tends to lag overall economic activity, as businesses tend to be reluctant to do any hiring until they are absolutely sure the recovery is for real.

But continued weakness in the job market could keep a recovery from even happening, many economists say. In recent months, companies have cut their inventories to the bone and demand from consumers has leveled off. And there have been signs that a jobless recovery is in the offing -- a period in which economic output grows, but companies are able to be more efficient without adding staff. Friday's report will help answer that question.

But unless companies start hiring, these analysts fear, consumers will remain too fearful to make major purchases and any economic growth will be short-lived. And so far, evidence of substantial improvement in the labor market has been fleeting.

"Even if the rate of job losses is not as awful as it has been, it's still more awful than we can stand in the longer run," said Bill Cheney, chief economist at John Hancock Financial Services. "It's hardly something to feel great about."

The report also will revise past estimates of job losses, based on more complete data now available. The new estimates are likely to indicate that the employment picture was even worse than first estimated, based on recent downward revisions to data on wage income, according to TrimTabs Investment Research.

That weakness is apparent in Thursday's report on jobless claims. The report was better than expected, but still represents what is, by normal standards, an astronomical level of job losses.

The four-week moving average of new jobless claims, which smooths out week-to-week gyrations, decreased by 4,750 to 560,000, the lowest level since January. The moving average has fallen for six consecutive weeks.

Last week's data were largely free of the distortions caused by the timing of auto layoffs that had affected jobless claims in recent weeks. Several states reported fewer layoffs in manufacturing, construction and automotive production.

Companies have cut staffs more deeply in this recession than would be expected given the amount they have cut back on production, which some economists argue resulted from businesses panicking and cutting more jobs than underlying business conditions would suggest.

If true, that would bode well for the future, in that businesses might need to put people back on staff soon.

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