Here’s the bad news about today’s jobs report: It proves once and for all that we are in a slow growth economy. And that’s worse news than you think.
Next to recent headlines, of course, most people would take slow growth. For the past few weeks, more and more forecasters have been saying that the economy may start to shrink and we will find ourselves back in recession. July’s jobs market number suggests that a new recession, or a double-dip, isn’t going to happen anytime soon. In July, the number of people employed in the United States rose by 117,000. Exclude the government, which eliminated workers last month, and the economy seems even stronger. Private companies increased their payrolls by 157,000 people in the month of July. That was far better than the 80,000 additional workers that were hired last month. And it was enough to cause the unemployment rate to fall for the first time in five months to 9.1%. Employment is the most important gauge of the economy, and you can’t have a recession when 100,000 more people get jobs. “We needed to get everyone back off the recession ledge,” says James Paulsen, chief investment strategist at Wells Capital Management. “Another bad number and I think things would have gotten very bad. We came very close to panic.”
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But while there wasn’t reason for panic, there wasn’t a lot of reason to rejoice either. Jobs remain hard to find. There are nearly 14 million people out of work. Earlier this year, many economists were predicting that the U.S. economy would grow 3% in 2011. Even today’s better than expected number puts us on a path of less than 2% growth. And that means all of our worries about the U.S. economy not being able to grow fast enough to support the amount of U.S. government debt will remain for a while. But perhaps the most troublesome fact that came out of Friday’s stronger than expected jobs report is this: American workers, more than two years after the end of the recession, remain pessimistic about their job prospects. More than 200,000 workers stopped looking for employment this month. That’s really bad news. And it indicates that in the place that we need optimism the most in the economy, among consumers and workers, we still don’t have it.
Remember when there was talk that the recovery would be V-shaped – a sharp snap back. If it wasn’t clear already that wasn’t going to happen, July’s jobs number proved that. “Today’s numbers are very much in keeping with an economy that is slogging along,” says Jared Bernstein, who is a senior fellow at the Center on Budget and Policy Priorities, a think-tank, and was until recently the chief economic adviser to Vice President Biden. The problem is right now the economy is growing at a pace where we are creating more unemployed people than jobs. Generally, it’s believed that we need companies to add 200,000 jobs a month just to keep up with new people entering the workforce. We have only hit that number a few times since the beginning of the recovery, and we were nearly 100,000, when you include government, short last month as well. So despite the fact that we are no longer in a recession, the percentage of Americans with a job continues to fall. Overall, the portion of Americas with a job in July fell to 58.1%. That’s not only the lowest the so-called employment population ratio has been since the beginning of the recession, it’s the lowest that percentage has been since the mid-1980s. That suggests the economic rebound has either been mostly an illusion, or that the rewards of whatever recovery we have had has been more concentrated than in the past. Either way it’s not good news for the path of the economy in the future.
So what happens next? It’s not clear that anything will change soon. One indication of future hiring is typically temporary employment. When temp hiring spikes up that usually means full time jobs will follow. But we haven’t seen that recently. And again in July companies added very few temporary workers. Steve Blitz, chief economist for research firm ITG, says he expects the jobs numbers will get worse again before they get better. We are in this reinforcing loop of slow growth. Companies have cash and they see their profits rising. So they don’t have to fire anyone, but don’t want to hire because there isn’t a lot of demand. Consumers don’t want to spend because they are nervous about their jobs. The unemployed get more and more discouraged, so they stop looking for work. The employed remain employed. The unemployed, remain out of work.
The question is when do we get out of it. And the answer probably is not anytime soon. Bernstein says the economy is not going to fix itself. He suggests a pay-roll tax cut and an extension of unemployment benefits. But having just this week inked a deal to cut spending, Washington is unlikely to dish out more stimulus spending, unless things get really bad, which they aren’t. The same is true with the Federal Reserve. The economy is only moderately bad. So that leaves us stuck in an economy that is not good enough to create a lot of jobs, but not bad enough to do anything about it. And stuck here for a while we may be.