USA Economy Worsens

WASHINGTON & SANTA FE, NM (By Michael Grunwald, Time) July 8, 2011  —  Job growth came nearly to a halt in June, the federal government said Friday with surprisingly grim new data that challenge expectations the economy is poised to bounce back from its spring lull.

The disappointing report comes at a sensitive time, as President Obama and Congress engage in high-stakes negotiations over raising the legal cap on the $14.3 trillion federal debt. The weaker job market could make Democrats all the more reluctant to agree to spending cuts that might further slow the economy in the service of reducing long-term budget deficits.

Employers added 18,000 jobs in June, a trivial number in a country with 150 million workers, and the unemployment rate rose to 9.2 percent from 9.1 percent, the Labor Department reported. It was a far worse report than expected: Economists had forecast 105,000 new jobs.

The jobs survey was exceptionally bleak even beyond those headline numbers. Job growth in April and May was revised downward by a combined 44,000 positions. Temporary employers, often a leading indicator of future activity in the labor market, cut 12,000 jobs. And roughly 272,000 Americans dropped out of the labor force, perhaps out of frustration with their job prospects. The unemployment rate would have risen even higher had they continued their job hunts.

A broader measure of unemployment that includes those who have given up looking for jobs out of frustration and those with part-time work who want a full-time job rose to 16.2 percent, from 15.8 percent.

Financial markets dropped after the data were released, with the Standard & Poor’s 500 was down 1.1 percent at noon. Money flooded into U.S. Treasury bonds, viewed as a safe port in a storm, with the interest rate the federal government must pay to borrow money for a decade dropping to 3.02 percent, from 3.13 percent.

It was, “All in all, an employment report with no redeeming features whatsoever,” said Barclays Capital economist Peter Newland in a research note. “Employment, unemployment, hours and wages all disappointed.”

Speaking in the Rose Garden late Friday morning, President Obama said Congress can take action “Right now” to help boost job growth, including streamlining the patent process, maintaining the payroll tax cut and advancing trade agreements. He then shifted focus to the debt-reduction package the White House is negotiating with congressional leaders, saying the uncertainty over whether lawmakers will raise the nation’s debt limit is keeping businesses from hiring.

“The sooner we get this done, the sooner the markets know the debt limit ceiling will have been raised and we have a serious plan to deal with our debt and deficit, the sooner we give our businesses the certainty that will need in order to make additional investments to grow and hire,” Obama said.

“I view this number as a call to action,” said Austan Goolsbee, the president’s chief economist, in an interview. “This number illustrates this thing we knew, which is we’ve got to get the growth rate up. ... There are all of those things we could do right now to support growth, where there’s bipartisan agreement. They’re keyed up just sitting there. When you see jobs reports like this, that should make it clear we need to stop bickering, and get these things done.”

House Republican leaders seized on the unemployment news at a Friday morning news conference, slamming the White House for “29 straight months of 8-percent-plus unemployment” and noting the administration had said when it rolled out its stimulus package unemployment would not exceed 8 percent.

“The president always tells us he inherited a bad situation,” House Republican Conference Chairman Jeb Hensarling (Texas) said at the news conference with House Speaker John Boehner (Ohio) and other GOP leaders. “I concede the point, but he has made it worse, and after 2 1/2 years, it is time for him to take responsibility and answer the question, ‘Where are the jobs?’”

On one hand, the weak reading on the job market shouldn’t come as a complete shock. For the first six months of 2011, the nation has averaged 126,000 new jobs created per month, which is just about what one would expect with the soft 2 percent growth in economic activity over that period.

At the same time, there had been some recent signs a spring slowdown in the economy was a mere soft patch. And the report throws cold water on the idea, embraced by many economists, that the economy was held back by temporary factors — such as higher oil prices and the Japanese tsunami-earthquake — in the first few months of 2011 and was poised for a burst of growth as those problems ease.

The steepest losses in June, as they have been throughout 2011, have been in government jobs. With state and local governments slashing workers by the tens of thousands to try to get their budgets balanced and the federal government posting heavy job cuts, as well, overall government employment fell by 39,000 positions in June alone. That followed 48,000 in jobs cut in May.

But unlike earlier in the year, when private-sector job creation was strong enough to make up for the decline in government jobs, businesses appear to be pulling back, not hiring at the same rate they were earlier in the year.

For example, transportation and warehousing employment, a good proxy for broad economic activity, rose by only 3,600 in June, compared with 11,500 in May. Financial sector employers cut 15,000 jobs, after adding 14,000 in May.

GOP presidential candidates Michele Bachmann, Mitt Romney and Tim Pawlenty laid blame for the weak job creation on the administration.

“The president promised if we passed the massive stimulus package that unemployment wouldn’t go above 8 percent, we are now at 9.2 percent,” Bachmann said. “Unfortunately, millions of Americans are suffering today as a result of the president’s broken promise and his policy of attempting to create jobs through massive government spending that has added over 35 percent to our national debt.”

Romney said “today’s abysmal jobs report confirms what we all know – that President Obama has failed to get this economy moving again.”

Pawlenty said the country “will have continued anemic growth and disappointing job creation so long as Barack Obama is president. ”