Zippo. Nadda. Goose egg. The big fat one. That’s how many jobs the economy added in August. And that is really bad news.
Perhaps we should have known that this summer – with the near government default, the European debt crisis, the U.S. credit downgrade, and Hurricane Irene – was bad for the economy. But somehow today’s news that employers added a net of zero new workers to their payrolls in August still seems like a big disappointment. Stocks dropped on the news, and some economists started talking more seriously that we are headed toward another recession. Mark Zandi, who heads up Moody’s Analytics, concluded that the poor jobs number essentially means the economy was no longer growing, at least for now. Labor economist Gary Burtless, a senior fellow at the liberal leaning think tank Brookings Institute says, “Looking at these jobs numbers, I’m gloomy.” Me too. Here’s why:The one bright spot was the unemployment rate, which remained unchanged in August at 9.1%. But still that’s a very high rate, and the rest of the report offered little hope that the economy is headed anywhere but down. Even in industries like healthcare and manufacturing, which had been the few standouts in this recovery, hiring was slow. Temporary hiring, which is usually a early indicator of future full-time job growth, was up only 5,000 jobs. Information technology, which is supposed to be the real strength for our economy, lost jobs, even after you adjust for Verizon, where workers were on strike. Retailing, which had been strong earlier in the year, lost jobs as well.
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There were some other numbers that stood out as bad as well. The number of workers who have stopped looking for a job jumped by 200,000 to 2.6 million. The total number of unemployed stayed at 14 million. The unemployment rate of African Americans – nearly 16.7%. The number of unemployed teen African Americans – 46.5%. Ouch. Over two years after the recession ended, these are really hard numbers to take. One more interesting number: While the household survey did find that more individuals – not company payrolls, which is what came in at zero – said they had jobs, the number of people who reported they have two jobs rose by 186,000. That means whatever hiring is going on is probably not in high-paying jobs. What’s more, Steve Blitz, senior economist at ITG Investment Research, said the number of people taking on a second job is another sign of the stress that households are facing and in the economy. “It’s difficult to walk away from these numbers without the conclusion that the economy is simply grinding to a halt,” says Blitz.
Brookings’ Burtless said all this means that we are very close to a double dip recession. He says it won’t take much of a shock to send the economy back into a slide. In fact, we may already be sliding. The problem is the economy is based on confidence, which is what we don’t have right now. And if everyone thinks we are headed back into a recession, then that’s how they will act. Companies will stop hiring. People will stop spending. “What we get is the vicious cycle that pushes toward recession,” says Burtless. That cycle may have already started.
That being said, here’s the best spin I can put on these numbers. First of all, the Verizon strike lowered the monthly payroll by 45,000 jobs. Those people aren’t really out of work. Add that to the 17,000 jobs that were added by private employers, and the economy, outside of government employment, added 62,000 jobs. What’s more, there is talk that retailers started their back-to-school sales earlier this year, adding workers in July instead of August. Also car companies reportedly moved their typical summer manufacturing slowdown later in the year, perhaps because of the Japan parts problem, than they typically do. That also made August employment look weaker than expected.
What’s more, while companies are not hiring workers, layoffs are not happening either. Interest rates are down. The dollar is down. Gas prices are falling. Those things should boost borrowing, exports, spending and eventually the economy. “I’m not sure today’s report is a definite sign that we are headed toward recession,” says James Paulsen, chief investment strategist at Wells Capital Management. He says we really are at the same spot we were a year ago, just before the jobs market picked up when few expected it. And again he expects a rebound in hiring in September.
Lastly, the poor jobs report might give Washington and the Federal Reserve more reason to act. It appears the policy makers at the U.S. central bank are on the fence about whether they should have a new round of bond buying that could lower interest rates and boost the economy. Some Fed bank presidents worry about rising inflation. But today’s weak job number also showed that hourly wages dropped, which should give the Fed reason to think that massive inflation isn’t going to happen anytime soon. If the Fed acts, that could be the best news coming out of the jobs report.
But the one big reason to worry is Washington. We need the government to act to arrest the problem of widespread joblessness in the country. But when I made my calls this morning to policy watchers, I asked if they thought this weak jobs number would change the dynamic in Washington. Most of this year, politicians, the President included, have seemed to be more focused on cutting spending and reducing the debt, not on getting people back to work. The people I talked to said no. Obama is expected to release a new plan to lower unemployment next week. Most said it is unlikely to contain any new large stimulus spending. Even if it did, Republicans would probably reject it. That means the long weekend for the unemployed will probably continue for a while. Happy no-Labor Day, America.