Worries Grow Over Jobs

Worries Grow Over Jobs

Stocks Drop as Unemployment Rate Climbs to 9.2%; Private-Sector Hiring Sags

Justin Lahart and Joe Light
Wall Street Journal
July 9, 2011

The U.S. economy added painfully few jobs for the second month in a row, undermining hopes that the sluggish recovery was getting back on track, depressing financial markets and putting new pressure on policy makers to come to the rescue.

The government's broadest snapshot of employment showed the nation added just 18,000 jobs in June. Private-sector hiring slipped to its slowest pace in over a year, and government continued shedding workers. May's equally disappointing job-creation number was cut in half.

The unemployment rate ticked up to 9.2%, from 9.1% in May. The report also showed that even more workers dropped out of the job market.

The economy has been fitful for two years since the recession formally ended. In the past, spending and hiring rapidly recovered after deep downturns. But the damage the housing bust and subsequent credit crisis did to household and business balance sheets appears to have hobbled that rebound.

Most economists remain hopeful that hiring will increase in the months to come as supply-chain disruptions ease and as lower gasoline prices boost spending power. But the weak jobs report raises the chances that consumers will hold off on purchases and that, in turn, will make companies reluctant to hire. "We really do need to see some signs that economic growth is picking up in the near future," said Goldman Sachs economist Andrew Tilton. "The pressure is on."

June's dismal numbers contradict a string of relatively upbeat recent reports on the economy, which had convinced many investors and economists that it was gaining steam. Stocks fell, with the Dow Jones Industrial Average shedding 62.29 points to 12657.20. Treasurys rose, pushing their yields lower.

The weakness in Friday's jobs report was broad-based.

Alongside scant hiring, wages edged lower, and the amount of time private-sector workers clocked on the job each week slipped. The numbers also hinted at trouble to come: Temporary-help jobs, which often signal the job market's direction, fell by 12,000, the third straight monthly decline.

Average hourly earnings for all workers on private payrolls edged down 1 cent to $22.99 in June. The average work week slipped to 34.3 hours from 34.4 in May.

Hiring was tepid across most industries. Manufacturing employment, which many economists expected to climb as supply disruptions stemming from Japan's earthquake eased, rose by just 6,000. Retailing jobs increased by only 5,000, despite reports from many stores of solid June sales. Construction payrolls fell by 9,000 and the financial-services sector cut 15,000 jobs.

"Every major component of the report was weak," said Bank of America-Merrill Lynch economist Ethan Harris. "That doesn't happen very often—usually there's some little ray of hope. The only silver lining is it might motivate Washington to get its act together."

President Barack Obama, who is to meet with congressional leaders Sunday as part of talks to reduce the budget deficit, tied uncertainty over the debt ceiling and the lack of a concrete deficit-reduction plan to the weak job market.

"The American people need us to do everything we can to help strengthen this economy and make sure that we are producing more jobs," Mr. Obama said in the Rose Garden.

But congressional Democrats and Republicans remain at odds over the budget. Democrats say that given the weak job market, they want no austerity cuts for at least another year and Republicans say they won't accept any tax increases for the same reason.

"Tax hikes on families and job creators would only make things worse," House Speaker John A. Boehner said Friday.

The grim jobs update puts pressure on the Federal Reserve to explore new ways to support an economy that appears to be stumbling.

At the very least, the report makes clear that the Fed is unlikely to raise interest rates in the foreseeable future.

With inflation picking up this year, the Fed is unlikely to take new steps to bolster growth soon. But if inflation drops, or if the second-half economic rebound Fed officials expect doesn't materialize, the central bank could take new actions. One option would be to restart the Treasury-buying program it ended last month. Others include making new commitments not to raise interest rates or sell its securities holdings.

The private sector added just 57,000 jobs in June, down from 73,000 a month earlier and the fewest since May of last year. Private payrolls, which account for about 70% of the work force, are 2.1 million higher than they were at their low in 2009, but are still 6.7 million below where they were in late 2007 when the recession began.

Carl Camden, chief executive of Troy, Mich.-based staffing company Kelly Services Inc., said that so far his company hasn't seen customers shedding temporary workers—usually an early warning that the economy is in deep trouble—and that some companies have been converting temporary workers to permanent status.

"This still feels to me like a soft patch rather than a harbinger of doom," he said.

Employer Rose Marie Nichols McGee, the co-owner of Nichols Garden Nursery in Albany, Ore., isn't optimistic. With sales flat this year, she says she is unlikely to expand her work force of 10 employees. "The economy here is just not bouncing up," she says. "We're just not experiencing the growth we keep hearing about."

Amid the struggle to close budget gaps, government employment at the federal, state and local levels fell by a total of 39,000 jobs in June, the eighth consecutive month of declines.

Johnna Palm of Carlisle, Pa., lost her job as a community-development specialist with the Cumberland County Redevelopment Authority in mid-June. Ms. Palm, 45 years old, estimates that her severance package, along with her savings and unemployment, are enough to last her six months.

Right now, she plans to apply for a range of positions, possibly in grant writing or administration. But once her savings dwindle, she says she'll start looking at lower-paying work.

"If I get to that point, I can work retail. I can stock shelves. I can be a hotel desk clerk," she says. "I'm trying to be realistic."