Slow Hiring Pace Thwarts Economic Recovery

Aug 27, 2010

by Don Azarias

Still showing a lack of confidence in the nation’s economy, compa nies didn’t do any significant hiring for a third straight month in July, making it likely that the anticipated faster growth of the economy will be slow for the rest of the year. Company job openings fell for the second straight month in June, a sign that hiring isn’t likely to pick up in the coming months.

Businesses, big and small, aren’t adding enough new workers to bring down the unemployment rate, currently at 9.5 percent. The latest government report shows 484,000 workers filing for unemployment claims for July, the highest level in almost six months. It’s a clear indication that some employers are still laying-off their employees. Claims could also be rising because of large job cuts by state and local governments, which are struggling with unprecedented budget shortfalls. State and local governments cut 48,000 jobs in July. Another possibility is that small companies, facing tight credit, are still reducing their staffs, even as larger corporations slowly resume hiring.

Economists closely watch weekly claims, which are considered a gauge of the pace of layoffs and an indication of employers’ willingness to hire. Other recent reports indicate that private employers are hesitant to add new workers. In a healthy economy with rapid hiring, claims usually drop below 400,000. Private employers added a disappointing net total of only 71,000 jobs in July, far below the roughly 200,000 needed each month to reduce the unemployment rate. While a significant number of jobs lost during the second quarter were temporary census positions, these jobs lost in July were permanent government jobs at the local, state and federal levels. According to the Labor Department, if you factored those in, the net gains were only 12,000 jobs. Overall, the economy lost a net total of 131,000 jobs last month, mostly because 143,000 temporary census jobs ended. Consequently, investors reacted by selling stocks and shifting into more conservative Treasury bonds.

The yield on the 10-year Treasury note, which helps set rates on mortgages and other consumer loans, fell to 2.85 percent from 2.91 percent. Also, major stock indexes all fell. The Labor Department also sharply revised down its jobs figures for June, saying businesses hired fewer workers than previously estimated. June’s private-sector job gains were lowered to 31,000 from 83,000. May’s were raised slightly to show 51,000 net new jobs, from 33,000.

Nigel Gault, chief U.S. economist at IHS Global Insight had this to say, “There is still a labor market recovery, but it’s a very, very weak one. Employers usually hire temp workers if they need more output but don’t want to hire permanent employees. But firms aren’t even adding temporary workers right now.” The loss of 5,600 temporary jobs in July after nine months of gains seems to support Gault’s statement. Gault further said that the slow pace of hiring will weigh on the recovery, with economic growth in the current quarter likely to come in even lower than the April-to-June quarter’s already weak 2.4 percent. The “underemployment” rate was the same as in June, at 16.5 percent. That includes those working part time who would prefer fulltime work and unemployed workers who’ve given up on their job hunts.

Without more jobs, consumers won’t see the gains in income needed to encourage them to spend more and support economic activity. Even those with jobs may not feel confident enough to ramp up their spending. And it will only get worse as the impact of the federal government’s stimulus package declines. The economy grew at 5 percent in the fourth quarter last year and 3.7 percent in the first three months of 2010. But that slowed to 2.4 percent in the April-June period. That’s not fast enough to generate many jobs and reduce the unemployment rate. Many companies appear to be getting more out of their current employees rather than adding new staff.

However, many employers are uncertain about the direction of the economy. Some are concerned sales will slow down once government stimulus fades away. Others fear the consequence if federal income taxes are allowed to rise next year as tax cuts enacted by President George W. Bush expire. “People have a long worry list they’re looking at,” said Ethan Harris, chief economist at Bank of America Merrill Lynch. Right now, the nation’s labor pool is about 154 million people, or just under 65 percent of the 238 million Americans ages 16 and older who are eligible to work. Nearly 139 million Americans are working. An additional 14.6 million want jobs but can’t find them. The government excludes the remaining 84 million people from the work force either because they are retired, not interested in working or want a job but have given up looking. So given those numbers, how much job creation is needed to bring down the unemploymenty rate? Some experts say the figure needs to be closer to 125,000.

But to significantly reduce the nation’s 9.5 percent unemployment rate, the monthly gains in rivatesector
jobs would need to equal at least 200,000 consistently. Even if hiring picks up, it will take years to regain all the 8.4 million jobs lost during the recession. This year, private employers have added a net total of only 559,000 jobs. It’s still a long way to go to regain those jobs lost. And that’s assuming that they will ever be regained.

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