Private Sector Hiring Lackluster in June

Heather Boushey parses the June numbers, finding little to cheer about despite an uptick in hiring by private businesses.

Long-term unemployment remains dim with 6.8 million workers out of work and seeking a job for at least six months. Stephan Azor, pictured here, has been seeking information technology work for the past eight months. (AP/Pablo Martinez Monsivais)
Long-term unemployment remains dim with 6.8 million workers out of work and seeking a job for at least six months. Stephan Azor, pictured here, has been seeking information technology work for the past eight months. (AP/Pablo Martinez Monsivais)

Today’s labor market numbers for June from the Bureau of Labor Statistics show an expected overall drop in employment, with total payrolls falling by 125,000 largely because the U.S. Census Bureau let go of 225,000 temporary Census workers last month. Yet digging deeper into the data, today’s report shows tepid job growth in the private sector—an additional 83,000 new jobs—alongside continued lay-offs by state and local governments.

Today’s report is yet another confirmation that the nascent economic recovery is not yet creating enough jobs and that policymakers should return from their holiday to provide help for long-term unemployed Americans, as well take other steps to stem the lay-offs by state and local governments. The pace of job growth remains far below what the economy needs just to keep pace with population growth, let alone begin to employ all those now in the unemployment queue. Over the past three months, the economy has added an average of 119,000 private sector jobs each month. At this pace, it will take our economy five and a half years to simply re-create all the jobs lost since the Great Recession began in December 2007.

The situation for long-term unemployed workers continues to show no improvement. There are 6.8 million workers who have been out of work and seeking a job for at least six months. These workers are losing their unemployment benefits right now due to the Senate’s inability to pass the necessary legislation. Without delay, unemployed workers need extended unemployment benefits, both for themselves and their families, and the broader economy.

The current number of long-term unemployed workers without benefits will drive down private sector hiring, drive up the federal deficit, and cost many currently employed Americans their jobs, too. There are no two ways about this: Without unemployment benefits, workers who lost their jobs through no fault of their own will have no cash in their pockets, will not be able to go to their local grocer for food, and will have trouble paying their rent or mortgage. As a result, businesses will be seeing fewer customers this holiday weekend, which will stymie employer’s nascent thoughts of hiring new employees or adding hours for the employees they have. Employers may even have to engage in new rounds of layoffs. On top of this, without benefits, current and possibly future unemployed Americans will owe even less in taxes, cutting back government revenues.

State and local governments are acting “pro-cyclically” in economic parlance, adding to the unemployment woes by laying off workers when unemployment is already unacceptably high. State and local governments are constrained in that, with the exception of Vermont, they cannot run budget deficits. This means that as their taxes decline due to high unemployment, falling property values, and home foreclosures, state and local governments cannot afford to maintain services without additional revenue.

So far in 2010, state governments shed 19,000 workers and local governments another 76,000. The federal government should step in and provide emergency funding to the states because without it they will continue to cut back just when the economy needs them to maintain employment.

A number of data trends in the June labor market numbers point to a slowing pace of jobs recovery. While the unemployment rate dropped down to 9.5 percent in June from 9.7 percent in May, this was not due to higher employment but rather to sharp drops in those seeking employment. The Bureau of Labor Statistics household survey reports that employment fell by 301,000 in June, while the labor force fell by 652,000. The U.S. labor force has lost just over a million workers over the past year, even as the U.S. population has grown by more than two million. In June, the number of people who report having dropped out of the labor force because they were so discouraged that they could not find a job jumped to 1.2 million, higher than at any point since this data began to be collected in 1994.

Private-sector employers added jobs across a wide array of industries last month, but generally at a slower pace than earlier in the spring. Manufacturing added 9,000 jobs in June, but that’s at a slower pace as this industry added an average of 30,000 jobs per month over the prior three months. The private service industries added 91,000 jobs in June, but over the period from February to April, they added 122,000 each month. After adding jobs from January to April, retail trade shed 6,600 jobs in June, after shedding 10,900 in May.

The labor market indicators that economists typically look at to know whether hiring will likely pick up in the months to come are not improving, but rather taking on an L-shape, holding steady or showing a slower rate of improvement. The temporary help industry gained an average of 62,200 jobs each month from October to December 2009, and an average of 39,100 jobs from January to March 2010, but only 20,500 jobs in June. Further, employers cut back on manufacturing hours by half an hour in June. Overall, hours for all private sector employees fell from 34.2 in May to 34.1 in June. While one-month changes are not necessarily meaningful, this does indicate that the trend is not moving toward more hours.

Another indication that the jobs recovery is stalling is the share of unemployed workers who have been unemployed for 5 weeks to 14 weeks. This number rose by over 100,000 in June. Combined with data over the course of June that showed upticks in those newly applying for unemployment benefits, this means there has been a slight shift towards layoffs of newly unemployed workers, which is not an encouraging sign.

Higher unemployment is associated with lower wages. Economists recognize that there is a negative relationship between unemployment and wages: Places with higher unemployment have lower wages, all else being equal. Today’s high U.S. unemployment is associated with falling real wages (after adjusting for inflation). The annualized rate of average quarterly nominal wage growth was 1.6 percent in June, while the Consumer Price Index grew by 2 percent.

The trends outlined in today’s labor market report are not bad, but they certainly aren’t good. Congress and the Obama administration have taken steps to put our economy on the right track, and the evidence is clear that these policies certainly helped. The Congressional Budget Office, for example, estimates that the American Recovery and Reinvestment Act saved or created 1.2 to 2.8 million jobs. Without it, we would have 8.7 million to 10.3 million jobs lost instead of the 7.5 million we have actually lost.

Yet Congress and the administration still have work to do. A large piece of that work is not accepting the conservative ideological argument that we should be fighting federal deficits in a time of mass unemployment and too-little demand for goods and services in the economy. The right policy choice is to keep spending until job growth becomes self-sustaining.

Heather Boushey is a Senior Economist at the Center for American Progress.

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Heather Boushey

Former Senior Fellow