U.S. hiring in July likely to be lackluster
WASHINGTON (MarketWatch) -- The U.S. probably added enough new jobs in July to soak up the increase in the labor force, but the pace of hiring is far too slow to lower the nation's high unemployment rate.
Economists surveyed by MarketWatch forecast a net gain of 100,000 jobs in July, up from a first reading of 80,000 in June. The June data will be revised and some economists believe the new number will be higher. See charts of what we already know about July jobs creation.
Still, companies are not hiring fast enough to sharply cut into an 8.2% unemployment rate or accelerate the sluggish U.S. expansion. The short supply of new jobs limits the overall rise in wages and keeps a cap on consumer spending -- by far the single biggest driver of economic. growth.
"The underlying picture is unsatisfactory and unlikely to improve anytime soon," said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York.
Even a better-than-expected increase in jobs that pleases Wall Street, say 150,000 or so in July, won't do much to alter underlying condition in a U.S. economy that has weakened over the past few months.
"If we get 125,000 that's an okay number and 150,000 is fine," said Gus Faucher, senior economist at PNC Financial Services. "North of 200,000 is very good -- I don't expect to get there anytime soon."
The skepticism is widely shared in light of series of indicators pointing to weaker growth and the prospect for potentially more difficult times ahead.
A rising concern among businesses, for example, is the threat of a "fiscal cliff" -- large tax increases and federal spending cuts set to take effect on Jan. 1 unless a divided Congress can craft an agreement.
U.S. exports, meanwhile, have slackened amid a deeper downturn in Europe and slower growth in key emerging markets such as China.
Many American companies have responded by scaling back sales forecasts, delaying some investments and instituting a hiring freeze. The manufacturing sector, which led the U.S. out of the 2007-2009 recession, has especially cooled off. Read about manufacturing slowdown.
These cues have been picked up by consumers, according to surveys that gauge their confidence. They've reacted to the greater economic uncertainty by boosting their savings after drawing them down to a two-year low last November.
The savings rate jumped last month to 4.4% from 3.2% last winter. As a result, consumer spending fell in back-to-back months -- June and May -- for the first time since the tail-end of the last recession. Read about consumer spending.
Cautious spending by consumers and businesses explain why U.S. growth dropped to 1.5% in the second quarter from 1.9% in the first quarter and 4.1% in the last three months of 2011.
The sagging expansion is evident in the monthly employment numbers. The U.S. added an average of 225,000 jobs a month in the first quarter, but that fell to a meager 75,000 in the second quarter.
"To get the consumer to spend more you need the labor market to pick up," Shapiro noted.
Not all economists, however, believe job growth has actually fell quite that much. Many suspect flaws in the government's effort to adjust for seasonal variations, which could have exaggerated hiring earlier in the year and is undercounting job growth now.
One piece of evidence may by the employment report produced by ADP, a firm that handles payroll processing for millions of workers. ADP shows job growth in the private sector averaging 168,000 over the past two months, more than double the government's figures.
Economists do not place great weight on the ADP report because there's often a big gap when compared to the government's numbers. Yet ADP sometimes does a better job of capturing changes in the labor market. Read about latest ADP survey.
Such a scenario unfolded in late 2011, when ADP showed job growth was accelerating at a quicker rate than the government's report. The Labor Department soon showed the same spurt.
Yet even if the U.S. is adding workers at somewhat faster clip, the economy is still not coming close to reaching its true potential.
"The economy is growing at roughly 2% a year. I think 125,000 jobs a month is consistent with that," Faucher said. "That's enough to keep up with growth in the labor force and slightly reduce the jobs rate."