Heard Off the Street: Jobs data don't buoy up experts
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Friday's jobs report confirmed the conviction of economists who believe U.S. economic growth will remain lackluster at best long after this year's presidential election is decided.
While the unemployment rate held steady at 8.2 percent, employers added only 80,000 to their payrolls in June and an average of about 75,000 a month during the second quarter. That compares with average job growth of about 225,000 in the first quarter, when a mild winter spurred abnormal job gains.
A main reason the unemployment rate did not budge is that more Americans gave up looking for work, so they are not considered part of the workforce. The jobless rate would be 15 percent if discouraged workers and those working part time because they cannot find full-time positions were factored into the equation, according to University of Maryland economist Peter Morici.
"[President Barack] Obama's best jobs program is to convince adults not to look for work," he said.
PNC Bank chief economist Stuart Hoffman found glimmers of hope in Friday's report. Wages rose 0.3 percent last month and those who were working put in longer hours, as employers authorized overtime rather than hire new workers. Those improvements should boost income by about 0.5 percent.
"That's one of the better gains we've seen in any month in a while," Mr. Hoffman said.
U.S. gross domestic production advanced at 1.9 percent in the first quarter. Most economists are forecasting it will not get much stronger over the next several quarters. Mr. Hoffman expects economic growth of 2.2 percent this year and 2.3 percent in 2013, while BNY Mellon chief economist Richard B. Hoey forecasts 2012 growth closer to 2 percent vs. his previous forecast of 2.5 percent.
The U.S. economy grew at a 3.1 percent clip last year.
"It's very possible we may be sliding below 2 percent GDP growth," said Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation, a Arlington, Va., public policy and economics research firm.
Mr. Waldman puts the odds of the U.S. economy slipping back into a recession at 50-50. That reflects the fact that large emerging economies such as China, India and Brazil -- which helped the U.S. recover from the Great Recession -- have their own economic problems.
There was more somber economic news last week.
Activity in the manufacturing sector, a star performer in the three-year recovery, fell in June for the first time since July 2009, according to the Institute for Supply Management. The Tempe, Ariz., industry group surveys manufacturers monthly about their payrolls, orders, deliveries and inventories.
ISM's index of the nonmanufacturing sector fell in June for the third consecutive month.
And the International Council of Shopping Center reported that same store sales at a group of major retail chains advanced a meager 0.2 percent in June. George Mokrzan, director of economics for Huntington Bank, said consumers may be taking a break after generating strong retail sales gains in the fourth quarter of last year and this year's first quarter.
There are some encouraging signs. PNC economists expect 14.4 million cars and trucks will be sold this year, up from 12.7 million last year. And gasoline prices, average $3.33 a gallon nationally according to AAA, are 60 cents a gallon lower than they were three months ago.
But lower prices at the pump "are not going to get us out of this mess," Mr. Morici said. Their benefits will be offset by larger problems, including Europe's recession and China's predatory trade and currency practices, he said. China cut its interest rates last week in an effort to stimulate its economy.
"They're doing everything they can to see that they get every job on the planet," Mr. Morici said.
The Federal Reserve Board engineered interest rates to record lows to help the U.S. recover from the 2008 financial crisis. The central bank expects to keep short-term rates near zero through at least 2014. Rates on 30-year mortgages dropped to a record low 3.62 percent last week.
While low interest rates got the economy on its feet coming out of previous recessions, they have served more as life support in this recovery.
A few trouble spots could throw forecasts out the window.
Mr. Mokrzan does not see the U.S. economy slipping into a recession, but that could change if Europe fails to come to grips with debt crises in Greece, Spain and other fiscally debilitated members of the European Union. Europe's recession already is expected to cause problems for U.S. companies that export goods there.
Then there are the automatic tax increases and spending cuts that will occur Jan. 1 unless Congress reaches agreement on less draconian ways of addressing the $1.2 trillion budget deficit. Economists worry the combined measures might push the economy off a fiscal cliff by clipping 4 percent from U.S. economic output.
Mr. Hoffman expects Congress will do something to prevent something that bad from happening.
"I don't think the economy will break its scrawny little neck falling off the fiscal cliff," he joked.
In an age when politicians and bankers have conditioned us to diminished expectations, perhaps that's the best we can hope for.
First Published July 8, 2012 12:00 am