August Jobs Report - No Sign of a Double-Dip
September 7, 2010
As with most of the recent data reports, the August Employment report was consistent with a near-term slow patch in economic growth, but not a double dip. Private-sector growth in nonfarm payrolls remained positive, and figures for the previous two months were revised higher. However, while the job numbers were better than expected, the pace is nowhere near where we’d like it to be.
Private-sector payrolls averaged a 200,000 monthly gain for March and April, but slowed to a 72,000 pace from May to August, well short of the 130,000 or so that would be consistent with the growth of the working-age population. That’s disappointing, but it’s not a disaster – and it’s certainly much better than the freefall we experienced a year and a half ago.
We know (see last week’s commentary) that there is a lot of flux in the labor market. Millions of jobs are created and destroyed every quarter. Prior to seasonal adjustment, net private-sector payroll gains are seen in the spring and the level is mostly flat in the second half of the year. This year’s pattern appears normal, although a bit soft in the last few months.
Earlier this year, the consensus was that real GDP growth would be a little stronger than 3% in 2010. Such a pace would not result in a significant reduction in the unemployment rate. The pace of growth is not expected to be subpar in the near term (less than a 3% annual rate), which means that labor market conditions are likely to get a little worse before they get better.
The unemployment rate edged up to 9.6% in August, due partly to an increase in labor force participation (as the extension of unemployment insurance benefits lured some discouraged workers back into the labor force). The employment-to-population ratio is a better measure of labor utilization. That rate has been little changed in recent months, but remains far below the pre-recession level. That means the economy is operating well below its potential.
Obviously, the impact of high unemployment rates is felt most severely by the unemployed themselves. Lives are being put on hold. Families are more likely to break up. Unemployed workers lose work skills over time and new entrants to the workforce do not acquire the skills they would normally get. The pain is more severe for those on the edge of the labor market. The unemployment rate for teenagers was 26.3% in August. The rate for African Americans was 16.3%. The broadest gauge of unemployment (the U-6 measure), which includes discouraged workers and those working part time but preferring full-time employment, rose to 16.7%.
So what can be done? Tax credits for new hiring or a payroll tax holiday would help, but we really need to see much stronger economic growth. A second fiscal stimulus would boost growth, but the anti-deficit mood in Congress stands in the way. The Fed could undertake further policy efforts (such as increased purchases of long-term Treasury securities), but officials do not feel that the potential benefits outweigh the potential risks.
Many business leaders cite the Obama Administration’s “anti-business” stance as a reason not to hire, ignoring efforts already made to support small business and to encourage new hiring. The perception is much worse than the reality. For example, the healthcare bill included a provision that requires firms to issue a 1099 tax form for any purchase over $600 beginning in 2012. Congress has gotten an earful on this and members of both parties have indicated that they will work to change it.
Perceptions do matter of course. However, the bigger factor is not what comes out of Washington, but whether firms see strengthening demand for the goods and services they produce. Should the Republicans regain the House in November, not a lot is going to change (Obama can’t get much through Congress as it is now) – but business perceptions could improve. Still, we need some sort of clarity on tax policy, and soon.
(c) Raymond James