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Economy lags as job growth remains weak

By Neil Irwin and Lori Montgomery
Washington Post Staff Writer
Saturday, July 3, 2010; A01

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.

The average workweek shrank to 34.1 hours, from 34.2, and average hourly earnings at private employers fell by 2 cents, to $22.53.

Job creation was strongest in the professional- and business-services sector, which added 46,000 positions, though nearly half were in the temporary-services field. Sectors that slashed jobs included construction, which cut 22,000 positions; financial activities, which shed 15,000; and state and local governments, which cut 8,000.

The White House has expressed confidence that a gradual recovery will continue, and responding to the soft June data, a senior aide noted that economic expansions tend not to move in a straight line.

"If you look at previous recoveries, they bounce around," said Christina Romer, chairman of the White House Council of Economic Advisors. "They're faster for a while, then slower for a while, then faster again. . . . What we're going to focus on is getting things into the up direction."

Election-year issue

Chronically high unemployment is creating a dilemma for congressional Democrats, particularly sophomores and freshmen from conservative swing districts where voter anger over the government's bailout of the financial system, and skepticism about last year's economic stimulus package, run high.

In advance of this fall's elections, Republicans have been blocking further spending on the economy while working daily to blame Democrats for both the bad jobs numbers and record budget deficits.

"The two things that are growing fastest in this Democrat economy are the size of the federal government and the crushing burden of the national debt," Senate Minority Leader Mitch McConnell (R-Ky.) said in response to the latest jobs report. "When America truly begins creating lasting private-sector jobs that help our economy grow, it will be despite the government, not because of it."

The barrage of criticism has left Congress virtually adrift when it comes to new spending. Although lawmakers recently sent Obama a modest package of measures aimed at supporting small businesses, the main Democratic "jobs bill" has slowly dwindled from nearly $200 billion to a simple $34 billion extension of emergency unemployment benefits, which expired June 2. This week, the Senate failed to muster the 60 votes needed to advance even that bill in the face of nearly united Republican opposition.

Meanwhile, the House approved an emergency measure to finance the wars in Iraq and Afghanistan late Thursday that includes $23 billion in additional domestic spending -- changes that will delay the bill's passage because it must now go back to the Senate.

The additions include $10 billion that Obama has sought to help cash-strapped local officials maintain public teaching jobs. House leaders covered the cost of the provision by proposing cuts elsewhere, but these would target some of Obama's top education priorities -- including his signature Race to the Top program -- and the White House is threatening a veto unless the proposed cuts are dropped. On Friday, 13 Democratic senators announced their opposition to the cuts.

Obama and Democratic leaders in Congress vow to continue pushing measures to support job creation when Congress returns July 12. But with lawmakers increasingly turning their attention to their reelection campaigns, time is rapidly running out. Democratic leaders are encouraging nervous lawmakers to support measures that would help create jobs, arguing that an improved economy is their most important political tool.

"The message has to be, 'We're engaged in triage,' " said Rep. Chris Van Hollen (D-Md.), who is in charge of the campaign to maintain Democratic control of the House. "First, you make sure you get the economy out of the ditch and get people back to work. But you also send a message and take action today to reduce spending and the deficit. It's going to be important that our members are able to communicate that."

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