The American economy, this month entering its seventh year of recovery from the Great Recession, still has some legs: Employers in June added a solid 223,000 jobs across a broad spectrum of service industries.
But Thursday’s Labor Department report, released a day earlier than usual because of the Fourth of July holiday, showed that those legs are a bit wobbly. Workers’ earnings, after a promising increase in May, were flat last month.
In fact, many experts had been looking for an uptick in the labor force — those who are working or looking for work — as the unemployment rate has dropped and private-sector employers have added a decent batch of new jobs month after month. But instead, the so-called labor participation rate fell sharply last month to the lowest level since October 1977.
That drop, along with stagnant average wages, points to softness in the economy — and is likely to give Federal Reserve officials pause in raising interest rates this September, as many analysts had forecast.
“The 223,000 payroll numbers were nice, but outside of that, it was pretty flat,” said Harry Holzer, professor of public policy at Georgetown University. “Labor markets remain too weak to put consistent pressure on wages.”
The overall job growth in June was in line with analysts’ expectations and provided a reassuring sign that hiring had bounced back from the winter slowdown and remained steady at a time of rising global turmoil. The eurozone is in the throes of the Greek debt crisis, and China and other emerging economies are weakening.
Encouragingly, the hiring in June was broad-based. It was led by business and professional services, a group that includes high-paying engineers and computer designers as well as lower-wage temporary-help workers.
Retail, healthcare and finance businesses also added a healthy batch of jobs. But the energy industry continued to downsize; employment in manufacturing slowed, and construction and government were flat.
Moreover, overall payrolls for May and April were revised lower by a combined 60,000 jobs. That left the average monthly job growth for the second quarter at 221,000 — a healthy pace but down from 260,000 last year.
Economists had predicted that the June jobless figure would drop a notch to 5.4%, but it fell more sharply as the labor force declined by a whopping 432,000 last month after an increase of similar magnitude in May, the Labor Department said. (The unemployment rate is derived by dividing the number of jobless people who are looking for work by the total labor force.)
While the labor force data are volatile from month to month, there has been persistent weakness in the participation rate of workers. And the big drop in June was a major disappointment.
When combined with sluggish earnings, lower labor participation means less tax revenue and other costs of unused and underutilized human resources, said Patrick O’Keefe, economic research director at CohnReznick, an accounting and consulting firm. “It is worrisome,” he said.
It remains to be seen when or whether more workers sidelined by the recession or the slow recovery will reenter the labor force. There were about 2.1 million officially jobless workers last month who have been unemployed for more than six months; the longer one is out of the workforce, the harder it is to go back. Some jobless people may have joined the underground or informal economy. And there are many who in recent years have joined the ranks of those on disability and in retirement earlier than they had planned.
Even so, as the unemployment rate has dropped, there is a thinning pool of available workers. And more unemployed may come out of the woodwork if wages rise and provide enough incentives to return to the labor market.
“Wages are the No. 1 way to attract people back to jobs,” said Tara Sinclair, an economist at George Washington University. As she sees it, employers soon will have to either lift wages or not hire.
“They’re going to have to make a choice,” she said.
article by Don Lee via latimes.com