Forget jobs. Where are the workers?
The unemployment rate rose and job growth was nearly non-existent in what was probably the most disappointing piece of economic news since the start of the recovery in mid-2009. The government reported on Friday that employers added just 18,000 workers in June. That was the slowest rate of job growth for the economy since last September. The unemployment rate rose to 9.2%, which was the third month in a row that the job market’s most important gauge ticked up. There are more than 14 million people in this country who are out of work. But what was even worse was the fact that for the first time in a number of months, the number of people out looking for work dropped as well.
But even that doesn’t really give a picture of just how bad the job market is. Let me try again. From February through April, companies added on average 215,000 workers per month. Based on that pace, we would return to our pre-recession unemployment rate of just under 5% in 2 and a half to three years, so sometime in 2013. Not great, but I’d take it. In the past two months, we have averaged employment growth of just 21,000 jobs per month. At that pace it would be 30 years until the job market recovers. And that would only be if the population didn’t grow, which it surely will. Forget about the second half of the year rebound – try second half of the millennium.
Even the typically optimistic Mark Zandi, who heads Moody’s Economy.com, seemed to think today’s jobs report was a sign of more bad news to come. Recently, Zandi has been brushing off the indications that the recovery has stalled, saying we are in a brief slow patch. But Zandi now seems to be backing off that stance. “This calls into question the possibility of a rebound later this year,” said Zandi on CNBC just after the number was released. “This kind of jobs number changes the dynamic.”
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What happened? Maury Harris, who is the chief economist of UBS, says that high gas prices tend to have a lag affect on the economy. So the weak job numbers we are seeing now could be a result of the rise in gas earlier in the year. If that’s all it is, then we could see a jobs rebound next month. Gas prices have recently been dropping. Others have blamed weather, which certainly will change. And then there is the Japanese disaster, which did slow the U.S. economy as well. But we’ve seen a slowdown not just in manufacturing jobs, which is where you would expect to see the impact of the lack of parts from Japan the most, but also in service sector employment, which has more more to do with U.S. consumer spending. It appears the real problem with the recovery has to do with something more fundamental. That means it may take longer for the job market and the economy to recovery than we thought. The real problem in not the jobs numbers. It’s the workers numbers.
From the beginning of the rebound we expected to see an uptick in the number of people out looking for a job. When the unemployment rate started to drop at the end of last year, everyone said that would be temporary. More people would re-enter the workforce, and the rate will go up again. Well the rate is rising again, but not because we have more workers. In fact, this month the number of people participating in the workforce dropped by nearly 300,000. Lots of people have been writing about the disconnect between corporate profits and jobs growth. Bob Doll, chief equity strategist at investment firm BlackRock, says corporate profits, which have been up, only leads to hiring if there is confidence. And that’s the real problem with this recovery. We have never really had a rebound in confidence. And you could see that in the workforce numbers. People weren’t flooding back into the labor force even when we were adding more than 200,000 jobs a month. And they certainly are not going to now. Confidence is a very hard thing to turnaround. The financial crisis certainly started the drop, but when the stimulus didn’t deliver as promised I think that cemented things for a while. So while a drop in gas might help, we have a more basic problem.
When will the job market turn around? The signs aren’t looking good. Steve Blitz, who is a senior economist at ITG Investment Research, says that his data on Internet job postings suggests that it is likely we won’t see a rebound in hiring until at least September. What’s more, China, which was our one engine of growth creating demand for U.S. exports from abroad, looks to be slowing as well. So with China’s growth slowing, and confidence in the U.S., from workers and employers, stalled, the only answer I see is Washington. Even if the Federal Reserve does pull out QE3, it’s not clear how much that would do. The results from QE2 were mixed at best. It seems clear to me that Washington will have to act – either with new tax cuts or with some new stimulus spending program. The question is when. Amazingly enough, I don’t think things have gotten bad enough to create support for new stimulus programs. But if today’s data is correct, then it’s only a matter of time. It’s going to be a long, hot summer.