September 6, 2013

Tepid hiring in August clouds the jobs picture

Employers created only 169,000 payroll jobs last month. The national unemployment rate slipped slightly to 7.3 percent from 7.4 percent in July, largely because more Americans dropped out of the labor force, not because job hunters found jobs. The lackluster report could give Federal Reserve policy makers a reason to keep pushing the economic gas pedal.

A lackluster jobs report Friday could give Federal Reserve policy makers reason to keep pushing the economic gas pedal.

The national report for August pictured the job market as a vehicle sputtering along on flat ground and unable to power up hills.

“Blech!” said Justin Wolfers, a Brookings Institution senior fellow in economic studies. “Policymakers have been looking for a signal that the recovery has become self sustaining. This report doesn’t provide it.”

The Labor Department estimated a net gain of 169,000 payroll jobs in August, smaller than expected. And it said the jobless rate, a tick down to 7.3 percent from 7.4 percent in July, was “little changed.”

The small drop, analysts pointed out, was mostly due to a decline in the labor force participation rate to its lowest since 1978. As a result, some analysts believe the Fed board, which meets in two weeks, will continue trying to stimulate the economy.

At issue is whether the Fed will reduce, or taper, the $85 billion-a-month buying of bonds and mortgage-backed securities. The program reduces interest rates, and the money from the bond purchases goes into bank coffers, ideally to be lent out. The Fed has said it won’t curb the program drastically until the labor market improves markedly.

“The ‘taper’ camp was thrown a curve ball when the payroll numbers came in below expectation … but the consensus will still call for the taper to begin,” said Steven Ricchiuto, chief economist at Mizuho Securities, who thinks easing off the stimulus pedal is a mistake.

Kansas City Federal Reserve Bank president Esther George, in the taper camp, questioned whether the Fed’s bond-buying has helped the job market.

George said Friday that she hears businesses complain they can’t find qualified workers to fill existing job openings. That suggests “the labor market is facing challenges that monetary policy cannot directly address,” she said.

Some economists also called on Congress to enact an alternative to the sequestration budget cuts or, as Wolfers put it, “postpone the legislative shenanigans.”

The flurry of Fed speculation focused partly on the tiny decline in the unemployment rate — a reduction that’s mostly due to a drop in the labor force, meaning that fewer adults were working or looking for work.

The Labor Department’s household survey estimated that 312,000 Americans dropped out of the labor force from July to August.

“It’s very easy to draw down the unemployment rate if no one is looking for a job,” said Lindsey Piegza, chief economist at the Sterne Agee brokerage firm. She noted that the labor force participation rate of the working-age population fell to 63.2 percent, the lowest since 1978.

The government said employment rose in retail trade and health care but declined in information technology and held steady in most other industries. Details showed that job growth was dominated by part-time and entry-level positions, not higher-paying professional or manufacturing jobs that fuel a stronger consumer economy.

An analysis by the National Women’s Law Center noted that women got three-fourths of the net job gain in August. More than half of the job creation was in low-wage sectors — retail, leisure and hospitality, home health care services, nursing and residential care facilitites, and temporary help.

Overall, job growth was lackluster.

“Employers aren’t hiring because they’re worried about slackening demand,” said Dan Heckman, national investment consultant for U.S. Bank Private Client Reserve in Kansas City. He also was concerned that “housing prices are rising, pricing people out of the market if they don’t have good jobs.”

Even with downward revisions to previously reported employment totals, a comparison with August 2012 reveals modest improvement in the job market statistics. The jobless rate was 8.1 percent a year ago.

Yet, based on the government’s household survey, nearly a fourth of the 11.3 million unemployed had been job hunting for 27 weeks or more.

“Remember, jobless workers are not counted as being part of the labor force unless they are actively looking for work,” noted Heidi Shierholz, an economist with the Economic Policy Institute. “If the labor market were healthy, the labor force would number about 159.3 million” and the unemployment rate would be 9.5 percent.

Another statistic pinpointed by economists was the 7.9 million people employed part time “for economic reasons,” which means they couldn’t find a full-time job or their hours had been cut.

“Since January, the economy has added 813,000 more part-time positions but only 35,000 full-time jobs,” said Peter Morici, a business professor at the University of Maryland. “Adding in part-timers who want full-time employment and discouraged adults who have abandoned searching for jobs, the unemployment rate becomes 13.7 percent.”

Still, that’s the lowest it’s been since December 2008.

Chad Stone, chief economist at the Center on Budget and Policy Priorities, which analyzes policy effects on low- and moderate-income households, was among those calling for Fed and congressional economic stimulus.

Stone said that economic stimulus from the 2009 Recovery Act peaked in 2010, and that deficit reduction, spending cuts, and tax increases at all government levels “has hampered the recovery ever since.”

Meanwhile, the president of the National Retail Federation attributed the sputtering economy to “guarded” employers. They are “waiting for stronger signs of sustained economic growth before extending too many job offers,” said Matthew Shay, who leads the world’s largest retail trade association.

Some analysts noted one unusual job-growth statistic in the August report: Government employment showed a rare gain of 17,000, driven mostly by hiring in public education.

But, as noted by Dean Baker, economist at the Center for Economic and Policy Research, that’s a mostly seasonal gain likely to be revised next month. Furthermore, local education jobs are down by more than 200,000 from 2008.

Another notable indicator in the August data was in construction employment.

“Over the past three years, the number of unemployed, experienced construction workers has dropped by half,” said Ken Simonson, chief economist for the Associated General Contractors of America. “Unfortunately, the construction industry has been able to hire only about a third of those workers, while the rest have left construction for other industries, schooling, retirement, or have dropped out of the labor force.”

Key August job market numbers

Payroll jobs:

Up 169,000 but revised down by 74,000 for June and July

Unemployment rate:

7.3 percent, down from 7.4 percent in July

Labor force participation:

63.2 percent of 16-and-older population, down from 63.4 percent in July and a 35-year low

Average workweek:

34.5 hours, up one-tenth of an hour from July

Average hourly earnings:

$24.05, up 5 cents from July

Sectors with job gains:

Retail trade, food service, health care, professional and business services, wholesale trade, durable goods manufacturing

Sectors with job losses:

information, financial activities, nondurable goods manufacturing

Source: U.S. Bureau of Labor Statistics

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