Economy lags as job growth remains weak

President Barack Obama says the economy is headed in the right direction, but not fast enough to satisfy him or many Americans. The president spokes as a new report showed that the unemployment rate dropped to the lowest level in almost a year. (July 2)
By Neil Irwin and Lori Montgomery
Washington Post Staff Writer
Saturday, July 3, 2010

The economic expansion is sputtering.

Private employers added only 83,000 jobs in June, the government said Friday, too few to keep up with growth in the working-age population. The unemployment rate fell to 9.5 percent from 9.7 percent, but only because hundreds of thousands of Americans dropped out of the labor force entirely.

Combined with other recent data, the numbers depict a sluggish economy in which nearly 15 million people are out of work and job growth is mediocre. There is little evidence that a dip back into recession has begun. But the chances of a strong, self-sustaining expansion that can significantly improve the job market -- which seemed a real possibility during the spring -- are now slim.

"It's entirely possible that this is as low as unemployment will get for quite a while," said Nariman Behravesh, chief economist at the forecasting firm IHS Global Insight.

The confused outlook is causing paralysis on Capitol Hill, since the recovery is neither strong enough to provoke a turn toward deficit reduction, nor weak enough to lend momentum to President Obama's push for more economic stimulus. As Congress prepared to leave town for the week-long Fourth of July break, even funding for the wars in Iraq and Afghanistan was bogged down by the broader election-year squabble over spending.

Voters are frustrated both with high unemployment and high budget deficits, but the Obama administration and congressional Democrats face a catch-22: The deficit won't come down significantly until the jobless rate decreases, while most of the policies that could improve the employment situation would raise the deficit further, at least in the short run.

In recent weeks, every pillar of the economic recovery that started a year ago has showed signs of weakening. Manufacturers had been cranking up production -- but now their inventories are largely rebuilt, and they are expanding more slowly. The housing market was recovering as well -- until the end of a federal tax credit for home buyers this spring. Consumers have been steadily increasing their spending over the past year -- but their confidence plummeted in June.

And financial markets soared steadily for most of the past 16 months -- but the stock market has fallen on nine of the past 10 trading days, losing 9 percent of its value in the process. The Standard & Poor's 500-stock index fell 0.5 percent Friday, reacting in part to the soft jobs numbers.

Private concerns

President Obama on Friday emphasized that June was the sixth straight month of private-sector job growth and that the results are much better than they were a year ago. Still, he adopted a cautious tone. "We are headed in the right direction," he said at Andrews Air Force Base. But, he added, "we're not headed there fast enough for a lot of Americans."

The tepid pace of private-sector job creation in June came after even weaker results in May -- and both months were a reversal from much stronger private-sector job growth in March and April. Increasingly, it appears that those months were an aberration and that businesses are too fearful to begin a hiring binge.

"People are still really cautious, and we haven't seen small businesses engage in any substantial way," said Roy Krause, chief executive of SFN Group, a large employment-services company. "I don't have any real indicator that would tell you things are going to accelerate faster than they're currently going."

Overall, employers shed 125,000 jobs in June; that figure, however, reflects the Census Bureau cutting 225,000 temporary jobs. The net gain of 100,000 jobs is in the same ballpark as the number of new jobs needed every month just to keep up with growth in the labor force, but it is not enough to reduce the unemployment rate.

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