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U.S. job market shrinks again

The economy sheds 131,000 jobs in July as governments lay off workers. Companies appear to be investing in raising productivity instead of hiring.

August 07, 2010|By Don Lee, Los Angeles Times

Reporting from Washington — With the U.S. economy losing jobs for a second straight month in July, evidence is mounting that U.S. companies are spending huge sums on new equipment and taking other steps to make them more productive without hiring more workers.

The nation's unemployment rate remained stuck at 9.5% last month, the government reported Friday, as the economy sustained a net loss of 131,000 jobs. What's more, revisions of the previous month revealed a much bigger job loss than originally reported: The nation lost 221,000 jobs in June, not 125,000.

The persistently bleak employment picture comes at a time when many companies are recording strong profits and accumulating billions of dollars in cash. And it marks a sharp change from the past: Coming out of previous deep recessions, as the economy picked up, companies earned more and undertook both capital spending and hiring fairly quickly.

Not this time. Even as the country emerged from the worst recession in more than half a century, corporations have sharply stepped up their capital spending, but they have invested relatively little in job creation.

"A significant portion [of corporate spending] is going into equipment and software that are bolstering productivity as opposed to gearing up for expansion and job growth in the near term," said economist Lynn Reaser, president of the National Assn. for Business Economics, after analyzing government data on business spending.

That can reach all the way down to such issues as office space.

Kirk Meurer, owner of Modular Systems Technicians, a Cleveland company that sets up and services workstations and business offices, says orders have jumped from firms that want to redesign their facilities essentially to squeeze more workers into a smaller space.

"They've already cut staff to the bone. Now they're trying to maximize the space and efficiency," he said.

Such decisions by company executives may help explain the discouraging data in the Labor Department's report Friday. Private employers added just 71,000 net new jobs in July — not nearly enough to make up for the layoff of 143,000 temporary census workers and an additional 48,000 job cuts by budget-strapped state and local governments.

Analysts say the jobs picture is even worse than the government report suggests.

Although manufacturing employment went up by 36,000 in July, continuing a yearlong trend of growth, much of that was because automakers had fewer seasonal layoffs than usual. The temporary-help sector, which is seen as a precursor to broader hiring, lost jobs last month for the first time since September.

The nation's unemployment rate, which has drifted down from a high this year of 9.9% in April, would have been considerably higher if not for many people dropping out of the workforce. People who stop looking for work are no longer counted as among the unemployed. And in the last three months, more than a million people have disappeared from the labor force.

"If you look under the hood, it's not because of improving fundamentals, but because a lot of people gave up and said, 'I don't have a snowball's chance' " in this labor market, said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York.

Barrie White, a board director at Forty Plus of Southeastern Wisconsin, a job networking and support organization, expressed the frustration of many people in his area of Milwaukee: "How long do you keep getting kicked in the chops before it just wears you down?"

Both White and Chan, however, see glimmers of hope. White said more people were landing interviews and jobs than earlier this year.

Chan pointed in particular to one element in Friday's jobs report: For all private-sector employees, the average hours worked weekly during July ticked up slightly to 34.2 hours.

Chan said that was the economic equivalent of some 200,000 jobs — and more spending power. It may also indicate companies are getting closer to hitting a wall before they have to add workers.

But other economists said the increase in weekly work hours showed employers relentlessly pushing for productivity gains among existing workers instead of hiring more.

Companies learned during the recession to do more with less, and with uncertainties about consumer spending, the broader economy and government policies, many businesses are holding the line on employment, even as they pour hefty sums into new machinery, equipment and software.

Capital spending has gone up in every quarter since last summer, jumping 21% at an annualized rate in this year's second quarter, according to government data.

Paul Ashworth, a senior U.S. economist at Capital Economics, said much of that spending by businesses has been for replacement of equipment and machines that was put on hold during the recession. Those purchases won't necessarily reduce labor or enhance productivity, he said, but they won't be job generators either.

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