Why are we surprised by bad jobs numbers?July 6, 2012: 11:47 AM ET
For those of you who remember what vinyl records are, they tend to play the same spot of a song over and over and over again when they are broken. With that in mind, have I ever mentioned to you before that this is a barbecue recovery?
I've used this term at least a dozen times in stories (and Lord knows how many times on Twitter) since I first declared that the economy was in a BBQ-like low and slow growth phase back in June 2010.
Absolutely nothing has changed since then. Yet here we are in the summer of 2012, still perplexed by why employers are taking their sweet time to hire back people who lost their jobs during the Great Recession.
It's painful to admit this, but we need to get used to lackluster jobs growth ... regardless of who wins the races for the White House and Congress in November. And for all you liquidity-addicted traders out there craving your QE3 fix? There's not much the Federal Reserve can do to help the labor market either.
The 2008 and 2009 downturn was awful and it was a mess that was created from decades of wanton spending by consumers, businesses and governments. This is not something that can be fixed overnight. In that respect, it's no different than the European debt crisis.
Millions of people remain out of work and even though the unemployment rate has stabilized around 8.2% lately, the so-called underemployment rate has ticked up for two months in a row and now stands at 14.9%.
"The economy can't rebound that quickly from a horrendous credit-induced recession. You get this halting recovery that can last for years," said Dan Seiver, a finance professor with San Diego State University. He added that the damage to the balance sheets of consumers and local governments in particular were so severe that it's only natural to expect just modest and choppy growth.
The problems facing the U.S. economy are significant.
Retail sales are still lackluster, which gives corporations the perfect excuse to not hire. The problems in Europe add to the market's angst. The looming fiscal cliff of automatic budget cuts and the expiration of lower tax rates is another reason for individual consumers and important corporate decision makers to pull back on spending.
And while the worst may finally be over for residential real estate, that's not saying much. It will take years to clear the glut of foreclosed homes on the market.
The disappointing June jobs numbers are not a good sign. Yet they are not evidence of a new recession either. Let's put things in perspective. June is the third month in a row where fewer than 100,000 jobs were added to payrolls. The average is a measly 75,000 job gains a month for the second quarter.
But that follows a first quarter in which the average monthly gain was 226,000 jobs. Add that up and what do you get for the first half of the year? An average of 150,500 jobs a month. That level of growth sounds about right for an economy that's in a slow expansion.
There are reasons to hope that the trend of sub-100,000 jobs gains will soon end. Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, notes that the number of hours worked and hourly wages in June both rose slightly more than expected. That will help consumers a bit, especially since gas prices have fallen sharply from earlier this year.
Hoffman predicts that lower gas prices could boost consumer confidence and spending somewhat, which in turn should lead companies to hire more as the year progresses. He's predicting average job gains from the private sector of 165,000 a month for the next six months.
That's an improvement over the overall payroll gains (including government jobs) from the past three months. But it's hardly something to get that excited about. As such, Hoffman said his economic forecast for the U.S. remains "persistent but moderate."
It's also important to remember that the monthly jobs numbers may continue to be volatile. Would it be a huge shock if there were a few more months of job gains below 100,000 sprinkled with a couple of months with gains above 200,000? Not really.
I hate to trot out the U word again, but there is still too much uncertainty and that is holding things back. Terry Clower, director of the Center for Economic Development and Research at the University of North Texas, pointed out that what's happening this year is similar to last year and 2010. Initial hopes that happier days were here again were dashed by the reality that Europe isn't fixed and the U.S. still has to address its own fiscal problems.
"This is a recovery without commitment," Clower said. "We will probably continue to muddle along. There will be job creation but it won't be enough to meaningfully change the unemployment rate."