Job Growth Falters Badly, Clouding Hope for Recovery

By MOTOKO RICH

Published: July 8, 2011 - New York Times

For the second consecutive month, employers added scarcely any jobs in June, startling evidence that the economic recovery is stumbling.

All levels of government shed workers, and hiring by companies continued to slow, resulting in a meager 18,000 new nonfarm payroll jobs last month, the Labor Department reported on Friday. The government also revised downward the small gain for the previous month to 25,000 new jobs, less than half the original estimate.

Although the government’s survey of employers showed a slight expansion in jobs, a separate survey of households found that more people were searching for work than in the previous month, causing the unemployment rate to rise to 9.2 percent from 9.1 percent in May.

Economists were stunned. They had been expecting job growth to strengthen in June as oil prices eased and supply disruptions caused by the Japanese tsunami and earthquake receded. Instead, the government’s monthly snapshot of the labor market showed that several industries, including construction, finance and temporary services, shrank. At the same time, leading indicators like wages and the length of the average workweek, which tend to grow before employers begin adding more jobs, actually contracted.

“Even the wild-eyed optimists out there have nothing to grasp onto in this report except to say, ‘Ah, this too shall pass,’ ” said Joshua Shapiro, chief United States economist at MFR Inc.

Most analysts are not yet forecasting an outright slide back into recession, but at a time when President Obama and Congress are focused on spending cuts, Europe is in financial crisis and even China’s growth is slowing, there is little expectation of anything other than a prolonged slog for the United States economy.

“Stimulus is fading, and we still have plenty of problems left over from the popping of the bubble,” Mr. Shapiro said. “So it’s going to be a touch-and-go, or a very subpar, situation for a very long time. The question is a matter of degree in terms of how soft or subpar it’s going to be, as opposed to whether it’s going to remain that way.”

Stock market investors largely shrugged off the bleak labor report, as the Standard & Poor’s 500-stock index fell less than 1 percent to close at 1,343.80 on Friday. They have taken comfort in relatively strong corporate profits, aided in no small part by global sales. The discordance between business strength and feeble hiring has raised concerns that companies will continue to rely on productivity gains and investments in equipment, as opposed to more workers, to fuel growth.

With Republicans and Democrats very much at odds over the budget, Mr. Obama said the jobless numbers should give both sides more incentive to strike a deal. Government and private economists have been lowering their forecasts for national output this year, with the Federal Reserve now estimating little improvement over last year’s 2.9 percent growth rate.

In remarks in the Rose Garden at the White House on Friday, Mr. Obama went beyond counseling patience on the economy’s long return to health and urged Congress to extend the payroll tax cut passed last December. He also said that legislators should sign pending trade agreements and pass bills that would establish an infrastructure bank and reform the patent process, all measures that he said would help create jobs.

“There are bills and trade agreements before Congress right now that could get all these ideas moving,” Mr. Obama said. “All of them have bipartisan support. All of them could pass immediately, and I urge Congress not to wait.”

Republicans blamed the president and Congressional Democrats for the weak job market, with John Boehner, the House speaker, saying that ending the ban on drilling for oil and lifting regulations would spur hiring.

Though all the job growth last month came from private companies, which expanded by 57,000 jobs, they have made a striking retrenchment from the average of more than 200,000 jobs a month added from February through April. The largest gains came from companies in health care and leisure and hospitality, while manufacturers, which lost jobs in May, added a mere 6,000 slots in June.

The economy needs to add about 150,000 jobs a month just to keep up with normal population growth. The protracted stretch of weak-to-moderate job creation over the last two years has left many of the people who lost jobs during the recession increasingly desperate. There are now 14.1 million unemployed, with 6.3 million of them having searched for work for six months or longer. Including those who are working part time because they cannot find full-time work and those who have stopped looking, the broader unemployment rate is now 16.2 percent, its highest level since December 2010.

Economists said that companies had been battered by a string of bad news throughout the spring and were reluctant to hire. “Sentiment for businesses is on a knife’s edge,” said Omair Sharif, United States economist for the Royal Bank of Scotland. “So that when you get a few negative data points, it’s all doom and gloom.”

Budget strains were evident in the public sector as the federal government slashed 14,000 jobs, and state and local governments cut an additional 25,000. Nearly three-quarters of the job losses at the local level came in education.

The Labor Department report gave little hope for a quick turnaround. Temporary help services, which tend to expand before employers hire permanently, fell by 12,000 jobs.

Janette Marx, senior vice president for Ajilon Professional Staffing, a unit of Adecco, said that while companies in accounting and finance were making fewer requests for temporary workers, they were slowly recruiting permanent hires. But employers are still very jittery.

Companies are “keeping themselves on the edge,” said Jeff Joerres, chief executive of ManpowerGroup, a temporary staffing firm. “As soon as there is any sense of confusion — whether it be political, abroad, economic — they can stop. They literally pick up the red phone and say, ‘no more this week.’ ”

For hopeful signs, some economists pointed to more recent data showing a pickup in retail sales at chain stores and a rise in an index of business hiring. In manufacturing, analysts expect an increase in auto production in the fall, partly because disruptions in supply will have diminished and partly because of built-up consumer demand.

Daniel J. Meckstroth, chief economist of the Manufacturers Alliance, a trade group, said consumers who had been delaying purchases of cars, washing machines, refrigerators and other big equipment that breaks down over time would eventually start buying again as they paid down debts.

“Spending was severely cut during the recession,” Mr. Meckstroth said. “Now, the longer you wait, the more pressure there is to make purchases. You can’t postpone some things indefinitely.”

Steve Blitz, a senior economist for ITG Investment Research, countered that consumers were satisfying their need for autos by buying used cars. “Just because Toyota didn’t sell the car in May or June doesn’t mean that they’re going to sell it in September,” he said.

Christine Hauser contributed reporting.

A version of this article appeared in print on July 9, 2011, on page A1 of the New York edition with the headline: Feeble Job Numbers Show Recovery Starting to Stall.