JUDY WOODRUFF: The U.S. economy served up a surprise today. New data from July showed unemployment actually fell and the number of jobs lost was smaller than expected.
Jeffrey Brown has our lead story report.
JEFFREY BROWN: It was the 19th month in a row of job losses, as businesses cut another 247,000 employees. But that was about 80,000 fewer than expected. It was also down sharply from June and was, by far, the smallest monthly total this year.
KEITH HALL, commissioner, Bureau of Labor Statistics: Two hundred and forty-seven thousand jobs, that’s a lot of jobs, and that’s a big loss. But given the context of the sort of job loss that we’ve been having, this is a good trend at the moment.
JEFFREY BROWN: Keith Hall, commissioner of the Bureau of Labor Statistics, appeared at a joint congressional hearing this morning. He said the bulk of layoffs in most industries, such as the auto sector, have already happened. And employees worked more hours last month, after sinking to a record low in June.
The overall unemployment rate was down slightly, to 9.4 percent, as thousands of people stopped looking for work.
But White House officials said they still expect it to top 10 percent this year.
KEITH HALL: I would say that we’re not in recovery yet. This is the path that we have to go to get to recovery. We expect to see moderation first before we start actually getting improvement in the labor market.
JEFFREY BROWN: In the meantime, some of the 14.5 million Americans out of work face the potential loss of unemployment benefits, but Senate Majority Leader Harry Reid promised action.
SEN. HARRY REID, D-Nev., Senate majority leader: Soon after Congress returns to Washington, we’ll need to address this matter. The unemployment benefits are a sound investment. There should be no disagreement that we must help those who are suffering as a result of an economic crisis they didn’t create.
JEFFREY BROWN: Congress has already extended unemployment benefits three times during this recession.
And for a closer look at today’s numbers, we turn to Diane Swonk, chief economist at Mesirow Financial, a diversified financial services firm in Chicago, and Jim Ellis, assistant managing editor at BusinessWeek magazine.
Well, Diane Swonk, companies are still shedding jobs, but not as quickly. So, relatively speaking, better than expected?
Better than expected results
DIANE SWONK, chief economist, Mesirow Financial: Certainly better than expected. We also saw an increase in the hours worked, which is one of those big precursors to hiring. Firms are much more likely to take the employees they have and work them longer hours before they actually make that commitment to actually hiring workers.
The other good news in the data was an increase in wages. That was really reflective in part on the higher minimum wage and a bounce-back from some of the weakest wage numbers we've seen in the post-World War II period.
JEFFREY BROWN: So, Jim Ellis, when you look at particular industries or sectors, where were the losses this time? Does anything jump out to you as looking better this time around?
JIM ELLIS, BusinessWeek Magazine: There's nothing that really looks radically better. I mean, we're happy to see that, in the areas that have continued to go down and have been going down for quite some time, like manufacturing, you know, the numbers were not any worse. In other words, this is less bad. And that's a good thing.
There was an unusual number in the sense that autos showed an uptick, you know, motor vehicle manufacturing, but a lot of that had to do with the fact that both General Motors and Chrysler have pretty well cut back a lot of activity because of their bankruptcies. And so that number was sort of an anomaly.
In other words, we're not seeing a lot in the sectors that surprise us. What we're seeing that really surprises us more is the fact that maybe the makeup of the labor force as far as the discouraged workers are concerned is larger than we expected.
JEFFREY BROWN: Diane Swonk, did you see anything that jumped out at you, in terms of particular industries or sectors?
DIANE SWONK: Well, the two sectors that have been the stars so far and sort of continue to show pretty much gains throughout the 19 months of the recession were medical, health care, and education, and those two sectors continue to show gains.
I'm concerned about that. And I think it underscores some of the concerns we all have about the headwinds we still face in the U.S. economy.
Real estate revenues have been cut dramatically. Pink slips have been handed out. And those layoffs for teachers won't show up until we get back to school in late August and early September.
We've also got a lot of people losing health care coverage. And when they lose health care coverage, it's putting a lot of burden on the costs of emergency room visits on hospitals. And we know hospitals are beginning to lay off a lot of administrative personnel as they have to absorb those extra costs.
Every percent increase in the unemployment rate is another million people without insurance, as well. That's nothing to say of what people do in terms of cutting back on their insurance coverage when their overtime hours disappear.
JEFFREY BROWN: Well, so, Jim Ellis, the unemployment rate actually fell, but that in itself is a bit of a mixed message, at least this time around, right? Explain the discouraged worker factor.
JIM ELLIS: Well, one reason that probably the rate fell even though the number of jobs that the economy has dropped is because a lot of people who are not working are now not classified as unemployed, officially unemployed.
And that's what they call people who are marginally attached to the workforce, in other words, discouraged workers, people who would like to work and are fit to work and have looked for work in the past 12 months, but now have stopped looking either because they feel that there's no jobs out there for them or because of something in the last four weeks that kept them from going out and pounding the pavement looking for work.
Those people aren't considered unemployed technically, and they fall out of the system. However, there's a lot of them. There's about right now almost 2 million workers who fit that way. And that's probably one of the reasons that the rate, the 9.4 percent rate, looks better than the previous month.
However, those people are still out there. And as soon as the economy starts to pick back up, they're going to flood back into the sort of job-hunting role. And that's going to probably help push up the unemployment rate.
JEFFREY BROWN: But in the meantime -- Diane Swonk, in the meantime, they're out there and they're out there for longer periods of time. I mean, that's one of the things that we're seeing in this recession distinguishes it from others, right?
DIANE SWONK: Absolutely. And that's why we've already seen the three extensions on unemployment insurance and we're going to see more. It's one of the things people don't count when they think about the costs of stimulus. They don't weigh it against the costs of not stimulating, and that is even more long-term unemployed workers and more unemployment insurance benefits that we have to hand out, out there because they really are subsistence-level kinds of safety nets.
I think it's also important to point out that many workers are sort of settling right now. Not only when they do get a job are they taking lower pay than what they had, many workers are taking part-time jobs just to get a paycheck home when they'd rather have a full-time job. We call that part of the shadow unemployment rate, and that's well into the double digits.
And although it came down a bit last month, we have to remember, these numbers surged in May and June as college students came out of college and didn't have jobs. So there are some seasonal problems in the data, as well.
JEFFREY BROWN: And I would think, Jim Ellis, that the longer people are out of work, is it harder for them to get back in, even when things do open up?
JIM ELLIS: It's more difficult simply because the longer they're out, given the job losses we've seen over the past year, there's more people to compete against for that same small number of jobs that's coming back.
DIANE SWONK: Exactly.
JIM ELLIS: I mean, right now, we've got, I guess, about a third of the unemployed -- right around 5 million -- or what they would call, you know, unemployed for more than 27 weeks. That's a huge period of time. You're talking about people who've been out of work for more than six months, and right now the average period of unemployment is running at 25 weeks.
This is unprecedented, at least unprecedented in the time that they've been keeping that data stream. And so I think that that's the thing...
DIANE SWONK: Absolutely.
JIM ELLIS: ... that a lot of people don't understand, that nowadays unemployment isn't what it might have been a generation ago, where you're out of work for 7, 10 weeks and you got back in. Nowadays, you're talking about many months out of work. And that is what pushes people to losing their homes, pushes people to -- basically losing almost everything they have.
JEFFREY BROWN: So, Diane Swonk, you come back to the rate itself. And certainly we're still hearing a lot of caution it may go -- still may go well over 10 percent. Is that still a consensus figure? When you look out, what do you see? And what's the predictions, I guess, in terms of when things might turn around at this point?
Predictions for recovery
DIANE SWONK: Well, we'll see positive growth in the second half of the year, but this is when we see a real break between Wall Street and Main Street. Profits can come back where you're holding down wages and the economy stabilizes.
But the labor force, the labor conditions can continue to deteriorate. And even as we see jobs come back, I think by December or January, I don't think those gains are going to be enough to pull down the unemployment rate.
In fact, something we talked about earlier, all those discouraged workers coming back into the labor force, unemployment could easily rise well into the first half of 2010, crossing 10 percent, even as the labor market improves.
And as it's doing that for Main Street, Wall Street will get better profits, but for Main Street what you'll see is, as people come back into the labor force and you're creating more jobs, again, those lines of people at -- competition for every job out there will continue to intensify.
JEFFREY BROWN: Jim Ellis, quick last word on the same subject, looking ahead at the jobs picture?
JIM ELLIS: In the last four recessions, there's always been a one- to six-month lag after the economy turns before employment turns up. We've got months to go with bad unemployment.
JEFFREY BROWN: All right, Jim Ellis and Diane Swonk, thanks both very much.
JIM ELLIS: Thank you.
JUDY WOODRUFF: Find out how hard-hit states are coping with record numbers of jobless claims on our Web site, newshour.pbs.org.