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Dismal jobs report raises doubts about economic recovery

Lack of hiring in June, which defies forecasts, adds to doubts about economic recovery.

July 09, 2011|By Don Lee, Los Angeles Times
  • President Obama delivers a statement on the monthly jobs report Friday. The U.S. unemployment rate rose to 9.2%.
President Obama delivers a statement on the monthly jobs report Friday.… (Susan Walsh, Associated…)

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."

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