Bad Numbers, At the Worst Time

by James Sherk

Today’s employment report is very discouraging. Analysts had expected employers to create around 150,000 net jobs — a bit more than needed to keep up with population growth. We got fewer than half that many: just 69,000 net new jobs. Updates also showed we created almost 50,000 fewer jobs than originally reported in May and April.

Job growth was weak almost across the board. Most sectors showed little to no improvement, with the main exceptions being healthcare (+33,000), transportation and warehousing (+36,000). Manufacturing edged up slightly (+12,000), as did wholesale trade (+16,000). Government employment fell (-13,000), as did construction (-28,000). The latter may be the result of the warm winter moving the start of construction projects (and thus jobs) forward into December and January.

Traditional indicators of labor market strength also showed little improvement. Employers often increase the hours of their existing workforce or hire temporary workers before committing to new full-time employees. Strong labor demand also raises wages. But in May, average hourly wages increased just $0.02, while weekly hours dropped 0.1 hours and temporary-help jobs barely increased (+9,000). In January, temporary-help employment had increased by four times that amount.

#more#The one silver lining is that unemployment numbers are not as bad as advertised. The household survey showed the unemployment rate increasing by 0.1 points to 8.2 percent. Fortunately, this was driven by a 0.2 percentage point increase in labor-force participation rate, not by job losses.

However, there is less to this improvement than meets the eye. It represents a statistical correction from the April report, which showed the unemployment rate falling by 0.1 points and the labor force participation rate falling by 0.2 percentage points. The household survey has a larger margin of error than the payroll survey and often fluctuates like this. Taken over a longer time frame — smoothing out statistical noise — the household survey also shows few signs of improvement.

This bad report could hardly come at a worse time. With the European economies approaching a crisis, and new GDP estimates showing the economy slowing down, the labor market faces real headwinds. Congress and the administration should think long and hard about the wisdom of hitting employers with the massive tax increases scheduled for the end of the year.

— James Sherk is senior policy analyst in labor economics at the Heritage Foundation.