The number we’ve all been waiting for is a disappointment. Net private-sector job creation was a slim 57,000 in June, below even May’s dismal 73,000 rise, which was revised down from the initially reported 83,000, the Labor Department reports. There had been hope that May was an anomaly, a one-off affair that would quickly return to the stronger levels of job growth witnessed in February, March and April. Yesterday’s modestly encouraging employment report via ADP certainly inspired that optimism. But today’s update is a sobering reminder that the economy will continue to struggle through the summer. Granted, the employment report, grim as it is, isn’t fatal. But it’s a sign that the pace of growth has slowed considerably and, even worse, it suggests that a revival in economic momentum faces stronger headwinds.
As the chart below shows, job creation in the nation’s private sector last month was near the weakest since the Great Recession technically ended in June 2009. The comfort margin between growth and contraction is dangerously thin. Looking at the jobs report by sector reveals a mixed bag of modest growth and mild retreats. Job growth in durable goods was a rare bright light, adding 15,000 positions. But there was plenty of offsetting mediocrity and declines, including construction’s 9,000 retreat and 15,000 fewer financial activities jobs in June. Even the category of temporary positions tumbled 12,000 last month. If companies are relucant to hire temps, what does that say about expectations? And while the services sector, which employs the bulk of the nation’s labor force, managed a familiar gain last month, it was slight: higher by just 53,000—one of the smallest increases in the post-recession period.
Optimism, in sum, has suffered a hefty blow today. Indeed, the unemployment rate inched higher again, reaching 9.2% in June–the third straight monthly increase from March’s 8.8%, the lowest point since the recession began. It seems that we’re moving in the wrong direction again, albeit slowly. It’s likely that there’s enough forward momentum in other corners of the economy to keep us out of a recession proper for the immediate future. But for how long? Without a return to higher levels of job creation, it’s hard to muster anything more than vague hope that better days lie ahead.
For the moment, the labor market appears to be stalling. That implies that the path of unemployment will drift higher. The possibility of slow strangulation can’t be ruled out. If the labor market is more or less treading water, there’s no imminent danger of an outright contraction in the macro trend, thanks to the support from elsewhere in the economy. But if job creation crawls along at May and June’s pace, the battle to keep the economy moving is going to get tougher, perhaps a lot tougher.
It’s true that the job market stalled last year for three months before reviving in the fall. A similar rebound can’t be ruled out, although the question is what will be the catalyst? Arguably the much-anticipated roll out of the Fed’s QE2 was part of last year’s salvation. This time, the central bank has recently ruled out a repeat performance, although maybe today’s jobs report will change that view.
Meantime, the anxiety over the budget talks in Washington and the potential for a technical default on Treasuries looms in early August. With each passing day, that’s the big issue until we see resolution. Otherwise, corporate America has one more reason to refrain from hiring.
This much is clear: Whatever ails the labor market is still with us and so reviving job creation is job one, more so than ever. But the path of getting from here to there is a mystery at the moment. The solution, of course, is spurring higher demand in the economy. There’s a fierce debate about the best way to proceed. Cut the deficit? Roll out a new stimulus (monetary and/or fiscal)? And a thousand other variations drive the discussion. In the wake of a financial crisis, however, easy solutions are in short supply.
The only fact we have this morning is a rather dark one. “The message on the economy is ongoing stagnation,” Pierre Ellis, senior economist at Decision Economics, tells Reuters. “Income growth is marginal so there’s no indication of momentum.”