Economic Growth Yet to Hit Job Market
Unemployment Rose in August As Employers Waited to Hire

By Neil Irwin
Washington Post Staff Writer
Saturday, September 5, 2009

The economy may be growing again, but employers aren't hiring.

Despite an emerging economic expansion, businesses were sufficiently skittish about the future that the job market continued its long, steep decline in August, according to a new government report Friday. The unemployment rate rose to 9.7 percent, from 9.4 percent, as employers shed jobs for the 20th straight month, the Labor Department said.

The increase was greater than many analysts had forecast, and it undermined hopes that the corporate sector will rapidly rebuild its workforce following the economic trauma of the last year. That in turn could keep a self-sustaining recovery from taking hold, as Americans have less money to spend and less confidence about their own job prospects.

"Our clients tell us they will not hire in anticipation of a recovery, but will wait until they see it," said Jonas Prising, an executive vice president at Manpower, the giant employment services firm. "In a normal recession, people would now start to feel more comfortable and start hiring, but nobody is doing that today. They'll do it when they see real orders and real business."

Silver Linings

The new numbers included some silver linings: The 216,000 jobs that employers shed in August was the slowest rate of job loss in a year, which drove the stock market up 1.3 percent, as measured by the Standard & Poor's 500-stock index.

Companies are not laying people off at the same furious pace they were a few months ago -- the number of people to lose their jobs in mass layoffs fell 26 percent in July. But neither are they willing to take the risk of bringing on new workers, despite signs that there could be better times ahead.

Economists envision a multi-step process as the labor market starts to improve. First, employers who have slashed their workers' shifts to avoid layoffs will bring them back to longer hours. That hasn't happened yet; the average workweek was unchanged for the second straight month in August, at 33.1 hours.

Then, employers will increase staff through temporary services, to try to meet demand without taking on the risk of hiring new permanent employees. That didn't appear to be happening much in August, as temporary services shed 6,500 jobs -- fewer than they were losing earlier in the year, but still a net decline.

Companies, especially small to mid-size ones, are still grappling with difficulty in getting loans, and thus are squeezed both by weak sales and a shortage of funding to ride out the hard times.

"Right now they're all gummed up," said Peter A.S. Pfeiffer, managing partner of Tatum LLC, a firm that provides temporary financial executives to companies, many of which are facing distress. "Once they have addressed their underlying issues, once they're stabilized, then they can start to hire folks. But that will be delayed until further out."

The result of that reluctance to hire, however, is continued miserable times for American workers. As the unemployment rate rose to a 26-year high, a broader measure of joblessness soared even more. A measure that also includes people working part time who want full-time jobs or who have given up looking for a job out of frustration rose to 16.8 percent in August, from 16.3 percent.

The number of private-sector jobs is now slightly below the level of August 1999 -- meaning that a decade has passed without any net creation of non-government jobs, even in a span during which the population grew substantially.

"We've gone 10 years with zero employment growth," said David Shulman, a senior economist at the UCLA Anderson Forecast. "This has been a lost decade."

Reduced Rate of Decline

The tally of lost jobs now stands at 6.9 million since the beginning of the recession in December 2007. But the rate of job losses has been declining, if haltingly, since winter. The 216,000 jobs eliminated in August is down from 276,000 cut in July and a peak of 741,000 lost in January.

The Obama administration on Friday stressed that reduced rate of decline. "We're losing more than we're creating, but we're heading in the right direction," White House press secretary Robert Gibbs said. "We are continuing to see a slowing of the pace of job loss."

Still, Gibbs said, President Obama "won't be satisfied until we're creating jobs."

Economists are generally forecasting that job growth will resume late this year or early in 2010. However, they generally expect the unemployment rate to continue rising. It takes substantial job creation just to keep up with a growing population, and many analysts expect job creation to be weak once it begins. Additionally, as the economy starts to look better, people who have dropped out of the labor force may start looking for work, creating upward pressure on the unemployment rate.

The 2001 recession, for example, ended in November 2001. But the unemployment rate did not reach its high for that economic cycle until June 2003.

Among the most positive signs in the report, average earnings for non-managerial workers rose 0.3 percent in August, the Labor Department said. But perhaps half of that was a one-time bump due to an increase in the minimum wage, which rose to $7.25 per hour on July 24, from $6.55.

The job losses, though lower than in recent months, remained broad-based. The construction industry cut 65,000 jobs, in line with the recent trend. Manufacturing companies cut 63,000 jobs. The health-care sector, as it has with few interruptions through the recession, added jobs.

Staff writer Anne Kornblut contributed to this report.

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