Bad jobs report sparks more debate over government's role

McClatchy NewspapersJuly 8, 2011 

WASHINGTON _ A surprisingly weak jobs report Friday sparked more debate about the best way to sustain the nation’s fragile economic recovery.

With June unemployment rising to 9.2 percent and employers creating only 18,000 new jobs, liberals used the dismal report to make their case for more government spending to stimulate the economy. Conservatives, eager to tame runaway deficits, argued that the nation’s overwhelming debt was curbing job creation.

Mainstream economic forecasters had expected 40,000 to 125,000 new jobs in June, a rebound from a soft May as falling gas prices and other head winds eased. Instead, the Labor Department offered a sobering report Friday that showed a continued slowdown in hiring and 44,000 fewer new jobs in April and May than were reported previously.

“This is a stunningly bad report on the job market. There was nothing redeeming in the numbers, from the weak job gain to the increase in unemployment to the decline in wages,” said Mark Zandi, the chief economist for forecaster Moody’s Analytics. “Businesses are very nervous and stop hiring if things don’t stick exactly to script, and the surge in oil prices earlier in the year and fallout from the Japanese quake were not in the script.”

Neither was a newfound determination in Congress and the White House to put reducing the federal budget deficit ahead of stimulating the economy, but that’s exactly what's happened. The loss of federal stimulus money coupled with falling tax revenue forced states and local governments to cut hundreds of thousands of jobs over the last several years. This spurred even more job losses by cutting demand for private goods and services.

As the private sector slowly continues to add jobs, many economists favor increased government spending to provide the economic boost that could fuel the recovery. But congressional Republicans have bucked that conventional wisdom and insisted that immediate government spending cuts are needed to shore up the $15 trillion federal deficit.

In a news briefing Friday, House Speaker John Boehner said the government shouldn’t spend money it didn't have. “We need serious reforms that restrain future spending,” he said.

But squaring that push for austerity with Friday’s dismal jobs report won’t be easy, said Nigel Gault, the chief U.S. economist at IHS Global Insight.

“For policymakers, this (report) makes their tasks more difficult,” Gault said. “The economy does need a long-term deficit-reduction plan, but it does not need fiscal austerity now.”

Scott Paul, the executive director of the Alliance for American Manufacturing, agreed: “The metric for President Obama and congressional leaders must now be the number of jobs we create, rather than the amount of deficit reduction we see. …Making drastic cuts in investments like infrastructure and research will only deepen the jobs crisis.”

A new Republican transportation funding proposal offers a telling example of the dilemma. Republicans in the House of Representatives have offered a six-year, $230 billion transportation budget to maintain and upgrade the nation’s transit infrastructure. President Barack Obama has requested $565 billion over six years and Senate Democrats are working toward a two-year, $109 billion transportation proposal.

Democrats say the GOP plan cuts current infrastructure investment by nearly one-third and would cost nearly 500,000 jobs — 75 percent of them in construction and manufacturing — in 2012 alone.

“We cannot pursue additional austerity when it is clearly sabotaging the economy,” said Roger Hickey, a co-director of the liberal Campaign for America’s Future. “A full-employment economy is the best way to reduce deficits.”

Because employment is a lagging economic indicator, June’s dismal jobs numbers could be revised upward if the government report missed some upward trends in hiring. On Wednesday, the ADP National Employment Report, a measure of private-sector hiring, said 157,000 private-sector jobs were created in June.

However, Friday’s report from the Bureau of Labor Statistics showed just about a third of that — 57,000 jobs — and was further dragged down by the 39,000 government jobs lost during the month.

Moreover, temporary hiring, usually a harbinger of future full-time employment, fell by 12,000 jobs in June.

“We can see no silver lining in this employment report, which is weak, weak, weak. The three-month growth in employment is now in line with the last 12 months, and the last two months have been significantly weaker,” said a note to investors by forecaster RDQ Economics.

Over the last two months, the economy added an average of 36,000 jobs each month, based on the first reports, well below the 100,000 to 150,000 that economists say is needed just to keep pace with new entrants into the workforce. The average is even worse given the revisions to the April and May numbers.

“Virtually every single measure was devastatingly weak: Only 18,000 payroll jobs were added, average hours declined, nominal wages fell, unemployment was up in almost all age groups, over a quarter of a million workers dropped out of the labor force altogether and the public sector continued to bleed jobs,” said Heidi Shierholz, an economist with the liberal Economic Policy Institute. “Furthermore, a downward revision to last month’s data means that this is the second month in a row with job growth at 25,000 or less. This is a remarkable, across-the-board backslide.”

Speaking outside the White House, President Barack Obama acknowledged the grim jobs numbers and warned that the recovery is likely to continue in fits and starts.

"We've always known we'd have ups and downs on our way back from this recession," Obama said, suggesting that high gas prices, European debt problems and the Japanese natural disaster in March have combined to slow economic growth and weigh on hiring.

The sour jobs report is sure to influence negotiations over raising the debt ceiling.

In a statement, Austan Goolsbee, the head of the president’s Council of Economic Advisers, cited the debt ceiling talks as a potential brake on future hiring.

Retailers added a soft 5,200 jobs in June, manufacturers added 6,000 jobs, and leisure and hospitality — often tied to business spending — posted the largest gain at 34,000. But the financial sector shed 15,000 jobs, construction lost another 9,000 and health care — usually the jobs leader — posted a soft gain of 13,500 jobs.

The number of people who've been unemployed for fewer than five weeks increased by 412,000 in June. The number of long-term unemployed — people who've been jobless for at least half a year — remained at about 6.3 million and represented 44 percent of the 14.1 million Americans now unemployed. Since March, another 545,000 Americans joined the ranks of unemployed.

Another 11.3 million Americans are considered underemployed, working part-time jobs but wanting to work full time, or out of the labor force but available if hiring picks up. These measures suggest that the pain working Americans feel is more acute than the 9.2 percent jobless rate suggests.

Economists have downgraded their expectations for later this year but they still anticipate annual growth above 2 percent — and not a slide back into recession.

“Despite the gloom, I remain confident that the job market will gain traction this fall. Oil prices are down, the Japanese quake effects are fading and I expect policymakers to raise the debt ceiling in a reasonably graceful way,” said Zandi, the Moody’s Analytics economist. “However, this optimism remains very much a forecast.”

JUNE BY THE NUMBERS:

  • Government jobs, down 39,000.
  • Financial services, down 15,000.
  • Temporary help services, down 12,000.
  • Construction, down 9,000.
  • Transportation and warehousing, up 3,600.
  • Retail, up 5,200.
  • Manufacturing, up 6,000.
  • Professional and business services, up 12,000.
  • Health care, up 13,500.
  • Leisure and hospitality, up 34,000.
(Kevin G. Hall and Lydia Mulvany contributed to this article.)

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