There goes the recovery.
In May, the number of people employed in America rose by just 54,000. In addition, the unemployment rate rose for the second month in a row to 9.1%. Worse, the time it’s taking unemployed people to find a job rose to a new high of 39.7 weeks, or nearly 10 months. There was bad news in May’s jobs report, and then there was worse news.
Yes, the economy created jobs, but far fewer than most economists, who were predicting the economy would produce nearly 4 times as many jobs in May just a week ago, and far fewer than the 200,000 needed just to keep up with population growth. It was also far fewer than the 235,000 jobs the economy created a month ago. And it was the slowest pace of job growth in eight months.
Right now, graduates, immigrants and others will start looking for work for the first time. They will be competing with the 15 million people who are already in the labor force and have been looking for work for months. Right now, it seems few will find jobs. Last week, the government said the economy grew at 1.8% in the first quarter. That was worse than people expected, but may said that growth was going to pick up. Today’s jobs reports suggests the economy is slowing. According to Kevin Giddis, who runs the fixed-income capital markets division at financial firm Morgan Keegan, based on today’s jobs number the economy is now growing at just 1.2%. Worse, today’s report suggests that unless the government does something about it – new tax cuts, stimulus, QE3 perhaps – it doesn’t look like the situation is going to improve anytime soon. Here’s why:
Before the jobs numbers came out on Friday there were a lot of reasons being put out there for why the economy might produce fewer jobs than expected in May. The tornadoes in Alabama and Missouri and the flooding along the Mississippi displaced people and made it tough for them to work. Japan’s earthquake was making it hard for companies to get parts and causing factories to slow production. Gas prices were up. All good reasons for why a slow down in jobs in May would be temporary. Indeed, Thomas Lam, U.S. group economist at OSK/DMG, put the chance of recession at 10%. Mark Zandi of Economy.com on CNBC said he though whatever slowdown we are having would be over by fall, and the recovery would be back on track.
The problem: none of those things – tornadoes, Japan earthquake, even gas – that will supposedly only have a temporary effect on the economy really seem to be the reason hiring slowed. Yes, there were about 50,000 people according to the government’s tally who couldn’t find work because of bad weather conditions. But that’s about normal. And remember that’s 50,000 people out of workforce of 150 million. So it’s hard to say weather was a major factor in employment. What’s more, government economists in their report specifically said they found “no clear impact of the disasters on the national employment and unemployment data for May.”
What about the Japanese earthquake, which we have been hearing a lot about recently as a reason for why the economy is slowing? Well, there’s not much evidence that points to that as the problem either. The theory is that U.S. plants can’t get key parts and therefore are shutting down production. Indeed, back a few months ago GM shutdown a pick-up truck plant because of a lack of parts from Japan. Well, manufacturing was down, but not a lot, just 5,000. But that comes after months of strong manufacturing gains. And if the employment issue was just a supply chain problem, then you would expect hiring in the service sector to have remained strong. But it didn’t. The companies in the service sector of the economy hired 133,000 fewer workers in May than they did in April.
Gas is the only credible explanation for why people may have spent less at stores and hiring in retail may have slowed. But that is just one sector. And while gas prices were higher in some parts of the country than others, it never hit the $4.00 a gallon average than most people were expect to be a real deathblow for the economy. What’s more, gas prices started falling in Mid-May, but that may have been too late to be reflected in the job survey, which is done in the middle of the month.
“Earthquake, tsunami, tornadoes, gas,” says Giddis. “You take your pick, and nothing explains it all, other than this one: The economy has slowed.”
So what does all this mean? Remember, it was about this time last year that the economy hit a weak patch and we began talking QE2 – the Federal Reserve’s stimulus program – and more tax cuts. Since the signs are that this employment slowdown is not the result of temporary problems, it seems some round of new stimulus is necessary. And while a lot of people say stimulus isn’t political possible, that’s not entirely true. The Republicans almost certainly would go for more tax cuts, even if they are not “paid for.” It’s probably time for Obama to cut a deal on corporate tax rates, if only a temporarily one, and perhaps talk about extending the Bush tax cuts another year. Those moves may not seem fair. Corporate profits have already rebounded and the income gap is only growing. But those move should produce some job growth as well. And if President Obama and Washington were to do nothing to help the 14 million people out of work in this country that would be more than unfair. It would be cruel.