The Employment Outlook
Raymond James
By Scott J. Brown
July 11, 2011
The June Employment Report was disappointing. Nonfarm payrolls rose less than expected. Figures for April and May were revised lower. Average weekly hours declined. Temp-help employment fell. There were no bright spots. That doesn’t mean that the economy won’t recover in the second half, but headwinds will prevent growth from being a lot stronger.
The better-than-expected ADP payroll estimate (+157,000 private-sector jobs reported for June) lured market participants into expecting a strong payroll gain in the Bureau of Labor Statistics report. The ADP figures divide job growth by firm size. Importantly, hiring at small and medium-sized firms began to pick up late last year, falling back temporarily in May. The BLS data showed only a 57,000 gain in private-sector payrolls, following a 73,000 increase in May (we need roughly 130,000 jobs per month to absorb new entrants into the workforce). However, the May-June softness (a 65,000 average) followed strong job gains in February-April (a 240,000 average).
Prior to seasonal adjustment, the economy added 840,000 jobs in June and 3.5 million since February. That fits into the usual seasonal pattern, although job gains may have been front-loaded into the early spring (at the expense of job growth in the late spring and early summer). If that’s the case, then the recent soft patch in adjusted payrolls may be nothing to worry about.
Austerity, while well-intentioned, is bad policy in a fragile economic recovery. State and local government is now averaging about a 30,000 monthly payroll decline. The federal government has also started to shed jobs. Moreover, the drag on overall growth will increase as the federal fiscal stimulus continues to fade. This should be a growing worry as one looks ahead to 2012. The rhetoric in Washington is not encouraging. In his weekly address, President Obama said, “government has to start living within its means, just like families do.” No, it does not. Economically speaking, the government is nothing like a household. Belt-tightening will make the recovery weaker rather than stronger. Without a doubt, the government does need to reduce the federal budget deficit over the long term, but trying to solve long-term problems through short-term pressures to raise the debt ceiling is just foolish.
The June Employment Report, while disappointing, doesn’t really tell us much about what to expect in the second half of the year. It’s possible that seasonal job gains were shifted a bit forward this year – or perhaps higher gasoline prices are extracting a greater-than-expected toll in consumer spending – or perhaps the job numbers will be revised.
The June jobs data fit into the overall pattern of a slow patch in economic growth. That’s also likely to be apparent in the advance GDP report released later this month. However, the economy appears to have enough positive momentum to continue to grow, and pick up somewhat, in the second half of the year – growth just may not be especially strong.
(c) Raymond James
