Be careful what you wish for. Over the past few months, Washington has gorged on a steady diet of the need to cut government spending while bemoaning the lack of new jobs. But as today's report from the Bureau of Labor Statistics shows, job destruction is the order of the day when governments spend less.
Although the economy had a better-than-expected net gain of 117,000 jobs in July and an unemployment rate dip to 9.1 percent, that came solely from private-sector hiring, as a revenue-starved public sector drags employment down.
July's jobs report did contain a handful of reassuring points, particularly after a month marked by the debt-ceiling debacle and reports of anemic GDP growth, all capped off by yesterday's 512-point plunge in the Dow Jones Industrials, the index's biggest single-day loss since December 2008. July's growth of 117,000 is a marked improvement over May's 53,000 and June's 46,000. The figures show continued growth in healthcare and social assistance, with 37,000 added jobs, and manufacturing, which added 24,000. Retail also posted encouraging growth, with a nearly 26,000-job gain, suggesting that consumers may be spending more. However, July's growth is just shy of the roughly 125,000 the economy needs to create monthly to keep pace with population growth. The numbers also show that soft spots remain in the areas of finance, which lost 4,000 jobs, and government, which shed 37,000 in July.
Markets clearly read the numbers with some relief, with the Dow spiking by nearly 200 points at the open. But that optimism soon evaporated as traders focused back on the gloomy debt picture in Europe. On balance,however, the numbers show economic growth to be precarious, a fact that President Obama acknowledged in a speech at Washington, D.C.'s Navy Yard this morning. "We need to create a self-sustaining cycle where people are spending, companies are hiring, and the economy is growing," the president said.
Indeed, the figures show that job growth has lost the momentum it had earlier this year. "The three-month average [job growth] so far is sitting at 72,000, and from the previous three months it was at 215,000. So things are not looking good," says Chris Christopher, senior principal economist at IHS Global Insight.
While employment is not yet improving at a robust pace, U.S. companies are still setting themselves up for future, sustained growth and in the meantime are reporting solid earnings. "Are we in a soft patch? Most definitely," says Susan Schmidt, a portfolio manager for Mesirow Financial, a Chicago-based financial services firm. "I think long-term, when I look at the companies here in the U.S. market, they've been very careful with how they allocate their cash, they've been very careful with how they spend capital. They're in very solid positions." When these companies finally feel solid enough, they will find ways to once again expand, says Schmidt.
Wherever future job growth might occur, it almost certainly won't be from the public sector for quite some time. State and local governments have been hit particularly hard by job losses, and with depressed home prices and cautious consumers, property and sales tax revenues are likely to remain weak, says Christopher. "Things are only going to get worse or slightly worse on the state or local government side," he says. Meanwhile, the debt deal Obama signed into law this week will trim federal spending going forward and could be its own drag on employment.
Congressional leaders responded to the jobs report by touting their respective plans for job creation. A statement from House Minority Leader Nancy Pelosi advocated "investing in innovation and clean energy," as well as "rebuilding our infrastructure." House Majority Leader Eric Cantor, meanwhile, told CNBC that excessive regulation and a "litigation environment" are among the factors holding job growth back.
The nation's intense focus on the jobs picture may have contributed to a delayed report of today's jobs numbers. According to a BLS spokesperson, the bureau's website was "overwhelmed" this morning, causing the site to be down for more than half an hour after the employment report's scheduled 8:30 A.M. release time. According to the spokesperson, the agency is working to ensure that the problem does not occur in the future.