US adds 80,000 jobs in June, as growth remains sluggish

Job creation in June was affected by the financial crisis in Europe, uncertainty about the future of health-care reform, and even the heat. A rare bright spot? Hiring of temp workers is up.

The economy has started the summer at a walking pace – a slow walking pace.

This lethargy was reflected Friday in the June jobs numbers issued by the Department of Labor, which reported that the economy created only 80,000 new positions. The unemployment rate remained unchanged at 8.2 percent.

The June numbers were the third consecutive month of disappointing job data. Over the past three months, the US economy has created fewer than 100,000 jobs per month. Within the June data, there was one bright spot: Payrolls and hours worked rose at a decent clip, indicating that businesses, while they might not be hiring, were giving their workers overtime to fill orders.

The slow job growth has important ramifications. First, it puts additional pressure on the Federal Reserve, which recently began a new effort to reduce long-term interest rates. Secondly, the lack of job growth makes it easier for presumptive Republican nominee Mitt Romney to question President Obama’s handling of the economy. And third, the low number of new jobs puts the economy closer to the brink of another recession.

“For the last three months we’ve averaged about 75,000 jobs a month,” says economist Joel Naroff of Naroff Economic Advisors in Holland, Pa. “That is approaching stall speed.”

It’s not surprising that job growth in June was so anemic given world events, says Mr. Naroff.

First, there was uncertainty over what would happen in Europe. Concern mounted that some big European banks might fail. Spain and Italy had to pay a rate higher than 7 percent to borrow money, a situation that economists said could not continue for very long. Some doomsayers thought a recession in Europe could spread to the US, which may have discouraged businesses from hiring.

“Europe was a big hurdle,” says Naroff. The Europeans have now “kicked the can down the road, pretty far down the road” with a political agreement to try to unify their budget processes, he adds.

Second, many businesses might have wanted to see how the US Supreme Court would rule on the Obama health-care law. Factory owners complained that until that issue was decided, they did not know how much it would cost them to hire new workers.

Third, the summer started off with a series of heat waves that seemed to sap consumers’ willingness to spend. Although the price of gasoline was falling, consumers may have been thinking about their electric bills as they ran their air conditioners to beat the heat.

“No one wants to go out when it’s hot – it’s a possibility,” says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. “But the malls are air-conditioned."

Mr. Brown doubts the latest job numbers will push the Federal Reserve into a more accommodative mode. However, he expects the Fed will start to shift its discussion toward economic weakness and what it can do to combat it. If the US economy starts to falter, he expects that the Fed will start to fret about deflation – the lowering of prices, which can sap the economy. “I’m not sure if we are there yet, but we are moving in that direction,” he says.

In Washington, the White House touted the fact that the private sector has added 4.4 million jobs over the past 28 months. It continued to cite the deep recession it inherited from the Bush administration. “President Obama has proposals to create jobs by ending tax breaks for companies to ship jobs overseas and supporting state and local governments to prevent layoffs,” said Alan Krueger, chairman of the Council of Economic Advisers in Washington, in a statement.

However, Republicans immediately snapped back. Rep. Kevin Brady (R) of Texas, top Republican on the Joint Economic Committee, stated that Mr. Obama’s economic recovery now ranks as the worst in modern times in terms of both job creation and economic growth.

“Three years after the recession officially ended in June 2009, we still have more than four million fewer private sector jobs than we did when the recession started,” he said in a statement. “And for the 41st consecutive month, the unemployment rate has soared above a discouraging 8 percent."

According to the Labor Department report, there were only a few areas of job growth. Professional and business services added 47,000 jobs in June, with temp services accounting for 25,000 of the increase. When businesses iare uncertain about the future, they often hire temp workers, who can be let go quickly. However, sometimes temp hires are also a prelude to full-time hires in the future. Since the bottom of the recession in September 2009, professional and business services have added 1.5 million jobs, according to the Labor Department.

The manufacturing sector reported an increase in 11,000 jobs in June, mainly driven by 7,000 new jobs in the automobile sector. On a campaign trip, Obama visited Ohio and Pennsylvania, where some companies are benefiting from the uptick in automobile sales.

But in many other areas, such as retailing, transportation, finance, and leisure and hospitality, there was little change in the jobs picture. The government sector continued to shrink, with the US Postal Service laying off 6,200 people.

“The federal government is now losing jobs,” says Brown. “State and local governments are recovering but not very rapidly.”

In fact, Brown says that, looking at education jobs on an nonseasonally adjusted basis, it appears that about 50,000 more teachers and school bus drivers lost their jobs in June than a year ago.

“It indicates there are still pressures on state and local governments,” he says.