TOPICS > Economy

‘Utterly Disappointing’ May Jobs Report: Why Aren’t Businesses Hiring?

June 3, 2011 at 12:00 AM EDT
The U.S. unemployment report for May showed a sharp slowdown in hiring and a small increase in the unemployment rate. Judy Woodruff discusses the new jobs numbers and what they mean for the struggling American economic recovery with Lisa Lynch of Brandeis University and Joel Naroff of Naroff Economic Advisors.
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JUDY WOODRUFF: The government’s new job numbers today showed a sharp slowdown in hiring and a small increase in the unemployment rate. They added to growing questions about how long it will take for millions of Americans to get back on a payroll.

At job fairs across the country, the search for work is getting harder and harder, as the latest Labor Department figures bear out. In May, the economy added a net of 54,000 new jobs, well below expectations. And with more people entering the work force, the unemployment rate rose from 9 percent to 9.1 percent.

Private employers took on just over 80,000 new workers in May, the smallest addition in nearly a year. And the manufacturing sector actually eliminated positions. At the same time, cash-strapped cities and counties kept on cutting their work forces. One of the biggest reductions came in the form of almost 18,000 education positions lost.

At a Chrysler plant in Toledo, Ohio, today, President Obama acknowledged the problems, even as he praised the auto industry’s turnaround.

PRESIDENT BARACK OBAMA: We’ve still got a long way to go not just in this industry, but in our economy, for all our friends, all our neighbors who are still feeling the sting of recession. There’s nobody here who doesn’t know someone who is looking for work and hasn’t found something yet.

JUDY WOODRUFF: In Washington, House Republicans said the time has come to pay attention to their ideas for job creation.

Speaker John Boehner:

REP. JOHN BOEHNER, R-Ohio speaker of the House: We can’t raise taxes on the very people who create jobs, and keep spending money that we don’t have. One look at the jobs report should be enough to show the White House it’s time to get serious about cutting spending and dealing with our ailing economy.

JUDY WOODRUFF: For now, though, it’s unclear how soon things will improve. The temporary work force failed to expand in May, which might have signaled that hiring for permanent jobs would pick up.

And underemployment remains a problem. More than 25 million Americans have given up looking for work or have part-time jobs, but want to be working full-time. That accounts for nearly 16 percent of the work force.

We take a closer look at this newest data with Lisa Lynch. She’s dean of the Heller School for Social Policy and Management at Brandies University. She’s a former chief economist for the U.S. Labor Department. And Joel Naroff, president of Naroff Economic Advisers, he joins us from Philadelphia.

Thank you both for being with us.

Lisa Lynch, to you first.

You look at these numbers all the time. What was your reaction for this month?

LISA LYNCH, Brandies University: Well, it was utterly disappointing to see this low number in terms of the number of new jobs added to the economy.

I mean, the month of May, the job creation machine really came to a screeching halt. And when you’re looking for numbers of 250,000 to 300,000 jobs to be added to the economy a month to start making a serious dent into the 14 million people that are out of work, a number like today’s headline number was very disappointing.

JUDY WOODRUFF: Lisa Lynch, dig a little deeper into the numbers. What do you see sector by sector?

LISA LYNCH: So, in today’s report, with the exception of what happened in local government, the story wasn’t so much that employers were laying off workers.

Although we saw some decreases in unemployment in the manufacturing sector and the retail sector, what really happened was that employers on the other sectors didn’t really add as many jobs as you would have expected. So, health care added jobs, but not at the same pace as in the past.

Professional and business services, especially for people hiring accountants and computer systems design employees, they added employees, but that was just 83,000 net new employees added to the economy. When you take into account, then, what happened on the local government side of almost 30,000 workers losing their jobs there, it was pretty devastating.

When you drill down into the manufacturing numbers, it was disappointing to see that manufacturing employment fell, but there’s two stories there. The durable manufacturing number, we still added jobs, but the job loss was concentrated in food manufacturing and printing and paper.

JUDY WOODRUFF: Joel Naroff, as you look at the circumstances last month, do you see what was driving what happened to jobs?

JOEL NAROFF, Naroff Economic Advisers: Well, I think there’s no question that the rise in gasoline prices has made businesses a lot more cautious in their willingness to hire at this particular point.

We had been moving along at a pretty solid pace. Indeed, businesses were adding jobs at a rate that was much more than any of us had expected coming into the year. But the speed bump that the higher gasoline prices has created has caused businesses to ask the question, is this recovery going to pick up the kind of speed that they were hoping it would, and if not, do they really needs the jobs right now?

So, I think what they’re starting to do is basically say: I’m going to hold off a little while, see if the gasoline prices come back, see if people start spending again, and, if we do have that pickup that would come with the lower gas prices, then we can start hiring once again.

I think this is a soft spot, but necessarily — not necessarily an indication that this economy is not going to be able to create a whole lot of jobs going forward.

JUDY WOODRUFF: Well, I want to ask you about that in a moment.

But we keep hearing that companies have a lot of cash on hand. So, how do you square that with the decision not to put more people on the payroll?

JOEL NAROFF: Well, there’s really a disconnect between companies earning money and the companies’ stock prices and how they spend it and where they spend it.

We’re in a globalized economy right now. A lot of the especially large companies that have a lot of business overseas are looking towards their overseas markets, rather than the domestic U.S. markets to expand. As a result of that, they may be making a lot of money, but they may be putting that money to use somewhere else outside the United States.

So, we used to say, if the stock market goes up or if companies are earning lots of money, that’s going to be a sign that the U.S. economy is strong and more jobs are coming. That’s not necessarily the case anymore.

JUDY WOODRUFF: Lisa Lynch, what would you add to the thinking that — what’s on the mind of employers as they make the decision not to hire?

LISA LYNCH: Well, I would add two other factors to what Joel just covered.

The first is the continuing drag on our economy of the housing sector. At this stage in the recovery, in past recoveries, we would have had home construction picking up, adding new jobs and a lot of auxiliary employment associated with that. And we’re just not seeing that.

The number of foreclosures that are still out there, the glut that still has to be worked through is going to continue to be a drag. So, we’re not getting pickup on that front that we would have otherwise have gotten.

And, secondly, when you look at new businesses, the credit crunch is still affecting new businesses. Banks are still nervous with respect to the — the nature of their exposure. So, new entrepreneurs that come into a bank that are looking for funds to go off with some new idea that no one else has done before are encountering a lot of resistance in terms of raising that capital that they need to grow their businesses.

And a lot of net new employment at this stage of the recovery in the past would have come from new businesses starting up and adding employees. And that’s not happening either.

JUDY WOODRUFF: Joel Naroff, I want to ask you about a lot of talk that we’re hearing in Washington right now, and that is in the direction of the need to cut government spending.

There’s no agreement yet. But if there were to be a deal reached to cut government spending by hundreds of billions of dollars, which is, I guess, the goal that some have, would that have an effect on jobs?

JOEL NAROFF: Well, I think the short-term effect on jobs is likely to be somewhat negative.

I think we’re seeing that already in the local government numbers and the education numbers, where cutbacks in funding is leading to job reductions. In the long term, it may help, but clearly, you reduce the amount of spending on the part of government, whether it’s people not getting as much money to spend or businesses not having contracts, all of these things lead to lower levels of demand.

And, in the short run, that’s going to lead to, indeed, possibly slower job growth than we would have had. There’s no such thing as a free budget cut. There is a cost that will get paid, and that payment comes in the short term in terms of somewhat slower job growth.

JUDY WOODRUFF: Lisa Lynch, as we wrap this up, can you leave us with anything positive you see in the numbers? We heard Joel say a minute ago that this doesn’t necessarily mean that the recovery has ended. Do you see anything positive here?

LISA LYNCH: Well, no, I mean, we have to make — understand that this was still a positive job number, and we did see people that had dropped out of the labor market, were discouraged workers, coming back into the labor market with this month’s report. So, that’s a good sign that people are starting to see help-wanted ads up there.

But, still, we have three workers for every — three or four workers for every job vacancy there is out there. So, as people are looking for employment, they’re coming back into the labor market, they’re finding employers are still somewhat reluctant to increase their payrolls.

JUDY WOODRUFF: Joel Naroff, 15 seconds. Anything positive in here?

JOEL NAROFF: Yes.

The business sector has been creating more jobs than expected. As Lisa pointed out, this recovery was likely to be softer than we hoped for because of the problems in housing and in credit. And so, if we look at it, we’re doing better than expected, not good enough. We’re not getting 300,000 jobs a month. But it’s going to pick up as businesses see that this economy can expand.

So, I’m hopeful for the second half of this year.

JUDY WOODRUFF: All right. Well, I was — I was hoping we wouldn’t leave everybody on an entirely bleak note, so thank you for that.

Joel Naroff, Lisa Lynch, we thank you both.

LISA LYNCH: Thanks.

JOEL NAROFF: Pleasure.