The federal government reported on Friday that job growth in June came to nearly a hault, challenging expectations that the economy is poised to bounce back from its spring lull.
The Labor Department report comes at a sensitive time, as President Obama and Congress engage in high-stakes negotiations over raising the legal cap on the $14.3 trillion federal debt. The weaker job market could make Democrats all the more reluctant to agree to spending cuts that might further slow the economy in the service of reducing long-term budget deficits.
Employers added 18,000 jobs last month, a trivial number in a country with 150 million workers, and the unemployment rate rose to 9.2 percent from 9.1 percent. It was a far worse result than expected--economists had forecast 105,000 new jobs.
The jobs report was exceptionally bleak even beyond those headline numbers. Job growth in April and May was revised downward by a combined 44,000 positions. Temporary employers, which tend to be a leading indicator of future activity in the job market, cut 12,000 jobs. And some 272,000 Americans dropped out of the labor force, perhaps out of frustration with the lack of jobs -- the unemployment rate would have risen even higher had they continued their job hunts.
A broader measure of unemployment that includes those who have given up looking for jobs out of frustration and those with part-time work who want a full-time job rose to 16.2 percent, from 15.8 percent.
Financial markets dropped immediately after opening Friday morning. The Standard & Poor’s 500 was down 1 percent at 9:40 a.m. Money flooded into U.S. Treasury bonds, viewed as a safe port in a storm, with the interest rate the federal government must pay to borrow money for a decade dropping to 3.04 percent, from 3.13 percent.
It was, "all in all, an employment report with no redeeming features whatsoever,” said Barclays Capital economist Peter Newland in a research note. “Employment, unemployment, hours and wages all disappointed.”
Speaking in the Rose Garden late Friday morning, President Obama said that Congress can take action “right now” to help boost job growth, including streamlining the patent process, maintaining the payroll tax cut and advancing trade agreements. He then shifted focus to the debt-reduction package that the White House is negotiating with Congressional leaders, saying that the uncertainty over whether lawmakers will raise the nation’s debt limit is keeping businesses from hiring. Once Congress reaches an deal, businesses will have the confidence to hire.
The report throws cold water on the idea, embraced by many economists, that the economy was held back by temporary factors -- such as higher oil prices and the Japanese tsunami-earthquake — in the first few months of 2011 and is poised for a burst of growth as those problems ease.
After three months--February through April--in which job growth was steady and solid in the ballpark of 200,000 new jobs a month, the labor market now seems to be worsening rather than improving. The 25,000 jobs added in May and 18,000 in June are far below the 125,000 or so jobs needed every month just to keep up with growth in the population.
The steepest losses, as they have been throughout 2011, have been in government jobs. With state and local governments slashing workers by the tens of thousands to try to get their budgets balanced and the federal government posting heavy job cuts, as well, overall government employment fell by 39,000 positions in June alone. That followed 48,000 in jobs cut in May.
But unlike earlier in the year, when private-sector job creation was strong enough to make up for the decline in government jobs, businesses appear to be pulling back, not hiring at the same rate they were earlier in the year.
For example, transportation and warehousing employment, a good proxy for broad economic activity, rose by only 3,600 in June, compared with 11,500 in May. Financial sector employers cut 15,000 jobs, after adding 14,000 in May.
The disappointing numbers create a problem for President Obama, who is running for reelection and negotiating with Congress on a debt-reduction deal to raise the nation’s legal borrowing limit by Aug 2. Earlier in the year, the president could point to steady declines in the unemployment rate. But if job creation remains stalled, the economy would become a huge campaign liability rather than an achievement to tout as 2012 approaches.