Dismal jobs report raises doubts about economic recovery

Reporting from Washington— 

With unemployment taking a gut-wrenching turn for the worse, political leaders and economic policymakers are being forced to confront the very real possibility that the tepid recovery has stalled out — and with no easy fix in sight.

U.S. employers added almost no new jobs in June, the government reported Friday. That pushed the nation's jobless rate higher for the third straight month — to 9.2% — and left the number of idled workers at 14 million, almost half of them jobless for six months or more.



The near-paralysis in hiring, only 18,000 net new jobs last month, extended across almost the whole economy, encompassing both the public and the private sectors.

Manufacturing, which many analysts had counted on to help improve the picture, was essentially flat. State, local and federal governments shed thousands of jobs, largely in response to lost tax revenues and budget pressures.

"It's an abysmally weak report. All of the distress indicators are flashing red," said Patrick O'Keefe, economic research director at accounting and advisory firm J.H. Cohn.

The latest report cast more doubts about the underlying strength of the economy and whether models for predicting job growth that were developed in past decades are reliable guides in the new economy.

The pressure on policymakers was intensified by the fact that high levels of unemployment not only inflict pain on the jobless but also impose heavier burdens on working Americans.

While attention is usually focused on the problems of the unemployed and the accompanying rise in the cost of government safety-net programs, the continuing high level of joblessness also means that working Americans must shoulder the full burden of pulling the economy forward.

Instead of helping pull the wagon — by paying taxes and spending wages to help boost consumption — the unemployed are on the sidelines. Government reports show that workers who lost jobs between 2007 and 2009 had median weekly earnings of $602.

"They're not generating goods and services and the incomes which would cause the economy to expand and make all of us better off," O'Keefe said, estimating that the lost output and income from the millions of unemployed amount to trillions of dollars. "For the rest of us, it means we'll work harder and longer, and be less demanding of income and benefits."

Major stock indexes fell sharply on the unemployment report Friday, though they recovered much of the lost ground by the end of the trading day. And economists began ratcheting down projections for the second half of the year from what many had expected would be a relatively healthy uptick in growth.

The lack of hiring in June was all the more dismaying because it flew in the face of most economists' predictions.

In recent days, many had raised their job-growth forecasts into the 100,000 range. Though job creation in May also had been disappointing, that was widely attributed to temporary factors, including a spike in oil prices and manufacturing disruptions stemming from the earthquake and tsunami in Japan.

May was not a blip, however. In fact, the 54,000 new jobs originally reported for that month were revised down to just 25,000 on Friday.

By contrast, from February through April, employers added an average of 215,000 jobs a month. That was a solid, if less than spectacular, improvement from previous months, and had raised hopes that the long-awaited rebound in the job market was taking hold.

The setback came at a time when President Obama and congressional Republicans were locked in a struggle over the federal deficit and intent on cutting federal spending, which in the short term, at least, would probably bleed steam out of the economy and further diminish hiring prospects.

The focus on budget cuts makes it highly unlikely that Washington will approve another round of fiscal-stimulus programs to juice up the economy. Nor does the Federal Reserve have a lot of options to spur lending and growth, already having taken interest rates as low as possible.

Austan Goolsbee, Obama's chief economist, said the near-halt in hiring over the last two months reflects the sharp slowdown in economic growth in the first half of the year.

June also brought more income erosion for many workers. The average weekly work hours, an important indicator of employment activity, declined by 0.1 to 34.3.

And, at a time when high oil, food and healthcare costs are diminishing people's spending power, the average hourly earnings for all private-sector employees dropped by 1 cent last month to $22.99. Over the last 12 months, average hourly earnings have increased by 1.9%, less than the overall rate of inflation.

"It's just an across-the-board retreat," said Heidi Shierholz, an economist at the Economic Policy Institute. "This is really scary."

The recession was officially declared to have ended in June 2009, but though company earnings and stocks have rebounded sharply, the job market has not. As of last month, the nation's total payrolls remained 7 million shy of what they were at the end of 2007, when the recession began.

Many economists say the economy needs to create 125,000 net new jobs a month just to keep pace with the growing population of working-age people.

O'Keefe believes that even more jobs, perhaps as many as 175,000 a month, are needed to hold the unemployment rate steady because many more older workers, their wealth stunted by the recession, have delayed retirement.

The Labor Department's survey of households showed that the so-called participation rate — those who are working or looking for work — fell back to 64.1% of the working-age population. That is the lowest since March 1984 and reflects, in part, the despair among many workers who doubt that they'll be able to gain meaningful employment.

Mali Griffen, 44, of Los Angeles, dropped out of the labor force after two years of fruitless searching. Griffen, who has a master's degree from UCLA in library science, is now taking courses online at Santa Barbara City College, hoping that an associate's degree in health-information technology will yield better results.

The latest employment report could further delay the Federal Reserve in raising interest rates. But even that wouldn't help the housing market or the economy much, said Greg McBride, senior financial analyst at Bankrate.com, a personal finance website.

"Until we see job growth kick into higher gear, there will be lingering uncertainty about the sustainability of the recovery," he said.