JEFFREY BROWN: The jobs numbers for May fell well short of expectations today, and that raised questions about the direction of the economy.
But the direction on Wall Street was clear: a sharp spiral down, fueled by renewed doubts about the recovery.
On the surface, at least, the American work force made gains in the May jobs report. The Labor Department said the economy added a net of 431,000 jobs for the month, and the unemployment rate dipped two-tenths-of-a-point to 9.7 percent.
But the drop in the rate came mostly from people who gave up looking for work. And nearly all of the new jobs were temporary census workers, 411,000 of them. Private sector hiring slowed sharply, making for the smallest monthly increase since January.
President Obama acknowledged all of that, but he told a crowd in Hyattsville, Maryland, this morning there’s reason for hope.
PRESIDENT BARACK OBAMA: Even if you put those temporary jobs aside, there’s no doubt that we saw another month of private sector job growth. And that is obviously critical because when businesses are hiring again, people start spending again. That, in turn, gives businesses more and more incentive to grow.
JEFFREY BROWN: Wall Street had a decidedly different take. Disappointment over the weak private sector hiring helped spark another sell-off. The Dow Jones industrial average fell below 10000, losing 323 points to close just below 9932. The Nasdaq fell nearly 84 points to close at 2219.
Republicans also took a dim view of the jobs data. Michael Steele, chairman of the Republican National Committee, said in a statement: “No amount of spin will resolve the fact that the President’s policies have been a colossal failure when it comes to creating jobs.”
But, in his Maryland speech, the president held to his view that the trends are in the right direction.
PRESIDENT BARACK OBAMA: This is the fifth month in a row that we’ve seen job gains. And while we recognize that our recovery is still in its early stages and that there are going to be ups and downs in the months ahead — things never go completely in a smooth line — this report is a sign that our economy is getting stronger by the day.
JEFFREY BROWN: Ultimately, some 15 million unemployed Americans, as measured in the May report, are banking on that hope.
Now, the numbers and the state of the recovery.
We turn to Lisa Lynch, dean and professor of economics at the Heller School for Social Policy and Management at Brandeis University, and Liz Ann Sonders, chief investment strategist at Charles Schwab.
Lisa Lynch, when you look at the real slowdown in hiring in the private sector, is it across the board? What do you see?
LISA LYNCH, Heller School for Social Policy and Management at Brandeis University: Well, in today’s report, we certainly saw only 41,000 jobs created in the private sector.
But, you know, I — rather than just looking at one month, if you look at the three-month average, the private sector has been adding almost 140,000 jobs a month. And, in particular, we saw in this report that manufacturing continues to add jobs to the economy. And that’s great news to see those types of jobs coming online again, after over two million jobs lost in the manufacturing sector.
We also saw job gains in the temporary help sector. We saw job gains, as always, in education and health services. And we saw some job gains in the transportation sector.
JEFFREY BROWN: Well, you are pointing to some of the good news, and yet everybody was talking about even much better news. All the expectations were high. And I think this took a lot of people by surprise, economists and signals from the White House.
So, what happened here today?
LISA LYNCH: Well, you know, economists are getting a — probably a well-deserved bad reputation for our ability to forecast well.
Economists were expecting about 100,000 to 200,000 net new jobs in the private sector. So, the number of 41,000 was clearly below the expectation, although it’s hard to look at that difference and explain over 300 points dropping off of the Dow day.
JEFFREY BROWN: All right, well, that brings me to Liz Ann Sonders.
Over 300 points. This has been a fragile market anyway. What — was it the surprise factor, or what do you see? What happened today?
LIZ ANN SONDERS, Charles Schwab: Well, you know, I think the jobs number was part of it, but we have been in a down trend anyway, and that’s the momentum in the market right now.
In addition, you had Hungary come out prior to the open in the market. In fact, let’s remember that mark — that the futures were actually negative before we got the jobs report. So, there was negative momentum into the day even before we got the jobs number.
You know, the correction that we have experienced so far, with today’s close, we’re down about 12 percent from the highs. We had actually been at about that level a week or two ago, and then had a bit of a rally attempt and are back down. And I by no means want to suggest this is not an angst-ridden time, particularly for individual investors watching the market do what it has been doing, particularly with this much volatility.
But, at down 12 percent 14 months into a bull market, with an 80 percent rally that preceded it, is actually a fairly normal correction. It may get a little bit worse before it gets better here, but, in the context of history, to see a 10 to 15 percent correction after an 80 percent rally 14 months into a bull market is actually fairly normal.
JIM LEHRER: Well, what are you seeing in terms of — you are talking about an anxious time. When you look at — I know you look at things broadly. If you look at industries, what does it tell you about what’s keeping companies from making more hiring decisions at this point?
LIZ ANN SONDERS: You know, I think it’s uncertainty.
In fact, you know, Lisa talked about the subsectors of the economy that are still creating jobs, and that was an important point. But I also think, if you look inside the employment numbers, it’s maybe sending an interesting message about what is plaguing businesses right now, because not only was there some hiring, not as much certainly as what expectations had built in, but the average workweek expanded.
Average hourly earnings went up. So, it’s telling you that the conditions for hiring are there, that the demand is building. The kind of growth that businesses need to see is there, hence their need to increase earnings — or wages to their workers to extend the workweek.
But there’s uncertainty. And you fill in the blank, uncertainty about taxes, health care costs, regulation, concerns about what’s happening in Europe, contagion into the financial system. I mean, the list, unfortunately, is fairly London. And I think that’s delaying the hiring process.
The good news, again, is that the economic fundamentals are there to support some hiring, but that uncertainty, I think, is preventing that in the near term.
JEFFREY BROWN: What about, Lisa Lynch, the — the — the drop in the unemployment rate, as we said, because of just more discouraged workers? Now, that’s not the way you want to get your unemployment rate down. What happened there?
LISA LYNCH: No, and just, you know, the prior month, we saw the unemployment rate go up, even though we had added a lot of jobs in the economy. And that was because people who had dropped out of the labor market returned into the labor market because they felt conditions were improving.
So, we’re going to see a lot of bouncing around with respect to the unemployment rate, as people come in, see if there — into the labor market, see if there are jobs available, and then, if not, will withdraw.
But just to follow up on the point about uncertainty, one of the things that we saw which again was good news in this report was that the underemployment rate, which includes those people who are unemployed, discouraged workers, and people who are working part-time, because the employers have — their employers have cut back their hours, that actually fell quite a bit to 16.6 percent, from 17.1 percent.
And, again, that’s — as Liz Ann was talking about, employers are willing to add more labor input, and they’re doing it through hours, as opposed to hiring more workers. So, they’re — it is not that things are all completely doom and gloom in the labor market, but this issue of uncertainty and, I would add, especially for small businesses that tend to be the driver as we’re coming out of a recession like this one, the access to capital, the availability of bank loans, I think, is another constraint for small businesses in this country.
JEFFREY BROWN: Well, Liz Ann Sonders, is there any more a — I mean, I want to ask, where are we in a normal cycle of recovery? I don’t know if there’s normal anymore. But where would you expect to be? And what are these numbers telling you about the potential long-term recovery now?
LIZ ANN SONDERS: If — if you do an historical analysis comparing the depth of downturns in the past to the pop you tend to get in recovery, this is undoubtedly subpar.
Given the contraction that we saw in the economy, you would actually expect at some point in the first year of recovery to get about a 7 percent or 8 percent GDP quarter. That is a pretty pie-in-the-sky number. Nobody has an estimate resembling that.
So far, the fourth quarter of 2009 has been the best quarter in the recovery, up 5.6 percent, so even that very strong quarter, in the context of broad history, relatively weak in the context of the downturn that we got.
Our view has been at Schwab that — that the most likely scenario would be, if we remember this from math — from our math days, a square root recovery. So, you get the V — initial V, where you get a rebound from the bottom, but then you get a little bit of a flat line, as opposed to the V continuing.
That’s a better scenario than the dreaded W, or double-dip recession. I still think that that is a fairly low priority. But I think it is this uncertainty, all of the aforementioned uncertainty, that is elongating the period between the contraction and the true juice in the recovery, and probably also keeping a lid on the type of recovery that we would otherwise expect to see, given how compressed things got during the downturn.
JEFFREY BROWN: All right.
And, Lisa Lynch before — before we end here, I want to bring you back to today, because we’re about to enter the summer season here. You got a lot of young people looking for summer jobs. You have college grads trying going — to get into the work force. It’s got to be a difficult time.
LISA LYNCH: Yes.
So, we saw in the employment report today that the teenage unemployment rate over 26 percent. So, that’s pretty grim news for young people that are trying to find a summer job. There is some — a little bit of good news for college graduates. We saw that the unemployment rate for people age 20 to 24 actually fell. It’s about a little over 14 percent. That was down from where it was a year ago, over 15 percent.
So, the scenario, the — the labor market for college graduates is challenging, but it looks a bit better than it did last year. For teens, it’s — it’s grim, but, hopefully, a lot of them will be taking advantage of some summer school programs and volunteer opportunities.
JEFFREY BROWN: All right, Lisa Lynch and Liz Ann Sonders, thanks very much.
LISA LYNCH: Thank you.
LIZ ANN SONDERS: Thank you.