Despite an encouraging appetizer dished up by ADP's employment numbers Thursday, jobs data from the government Friday proved to be a cold, and tasteless, entrée.
The economy added just 80,000 jobs in June, according to the Bureau of Labor Statistics, leaving the unemployment rate unchanged at 8.2 percent.
Even though some might say 80,000 jobs added is better than none, it doesn't change the fact that population growth is far outpacing job creation. According to economists, job gains in the neighborhood of 125,000 to 150,000 are needed just to keep up with population growth. That doesn't even take into account the still-swollen ranks of the already unemployed, around 13 million Americans.
But while the numbers are lackluster, they aren't entirely unexpected. With such a warm winter in many parts of the country, employment figures skewed up in early 2012. Industries such as construction, in which weather plays a huge role in employment, got a boost—or at least a delay—in cutbacks that usually happen in the winter months.
"You had a lot more people showing up for work, because it was such a warm winter people could make it to work, they weren't shut into their houses," says Lance Roberts, chief economist and investment strategist at Streettalk Advisors. "You had that, plus you were adding in all the seasonal adjustments, which really skewed the data to the upside."
Essentially, unseasonably warm weather was probably responsible for some of the early, more robust gains in the labor market, not a fundamentally improving economy. Now we're seeing the reverse. Weather patterns are lining back up, normalizing employment levels. That, coupled with a negative seasonal adjustment, amplifies the downside.
"We're seeing the real employment situation," Roberts adds.
And it doesn't look good. For starters, the vast majority of the jobs added in June were mostly likely temporary positions, which tend to be low paying gigs with little or no benefits. While it's easy and convenient for employers to add those types of jobs, it's just as easy for them to cut.
According to experts, many employers have been relying increasingly on temporary employees in recent months due to uncertainty about the outcome of the Supreme Court ruling on the Affordable Care Act.
"It's a direct testament to the fears over Obamacare in one fashion, because nobody knows what those cost for benefits are going to be so corporations are holding back from committing to long-term employment," Roberts says. "Remember, the biggest costs for corporate earnings are payroll benefits."
Drill down and you can see the consequences of that—one of the highest levels of corporate profitability compared to wages in history.
But it's not just headline employment numbers that are weakening. While disappointing employment numbers are bad by themselves, they're often a symptom of other eroding economic indicators. This past week, news broke that manufacturing slipped for the first time in three years and consumer spending is slowing down again. Troubles brewing abroad also put a damper on the outlook for the global economy.
"The media looks at one number to the next, but what's important is the trend of the numbers," Roberts says. "The trend of the numbers is negative and no matter what the [BLS] job number is this month, the trend in employment is negative, the trend in the economy is negative—that doesn't bode well for the next few months."
What it all starts adding up to is a replay of 2011, Roberts says: a decline in May, followed by a slight rally in June with a decline in July and August on its heels. At that point, the economy is growing at such a subpar rate, it isn't entirely implausible that the Federal Reserve could justify another bond-buying program, á la QEI and QEII, to stimulate the economy.
Right now the economy is struggling, barely growing at 2 percent, but it's not exactly careening toward a definite recession. That being said, the Fed really has no reason to launch another program to increase its balance sheet and infuse liquidity into the economy, especially given the hyper-political nature their role has taken on. The environment conducive to another Fed-led program would have to be one of negative sentiment, stock market declines, and a seriously slowing economy.