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Why hiring is at five-year low and the economy is stalling

According to a new report from the Labor Department, U.S. hiring fell to a five year low in May, with just 38,000 new jobs. Even if those numbers are off, the last quarter shows a similarly disturbing trend: 115,000 jobs added per month, an abnormal drop during this long period of recovery. Hari Sreenivasan talks to David Wessel of the Brookings Institution about why the economy is slowing down.

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  • HARI SREENIVASAN:

    The monthly jobs report may only provide a snapshot of the economy, but that picture in May was grim, and the photo album of the past three months is not such a good look.

    Just under 40,000 new jobs last month, that's abnormally low during this long recovery. But even if the numbers are off, the last quarter shows a slowdown, just 115,000 jobs a month.

    Let's break this all down with David Wessel. He's the director of the Brookings Institution's Hutchins Center on Fiscal and Monetary policy, and a contributing correspondent to The Wall Street Journal.

    Thirty-eight thousand jobs, everybody's kind of stunned by that. Some of those had to be the Verizon workers and the strike.

  • DAVID WESSEL, Brookings Institution:

    Right. It would have been twice as many jobs if it hadn't been for the Verizon strike, but, still, that 115,000 jobs a month over the past three months is much slower than we have been seeing.

    We have been seeing over 200,000 jobs a month.

  • HARI SREENIVASAN:

    And, as we were talking about, that the unemployment rate decreased, but it was the worst kind of decrease you want.

  • DAVID WESSEL:

    Right.

    We like it when the unemployment rate declines because more people find work. We don't like it when people drop out of the work force. As I said earlier, about half-a-million people dropped out of the work force, a lot of whom were in the over age 55 group, a lot of increase in — a lot of dropouts in the high school dropout class. So that's really troubling.

    And it reverses a trend we had been seeing over the past few months of more people coming into the job market.

  • HARI SREENIVASAN:

    So, there's a stronger correlation between higher education and unemployment?

  • DAVID WESSEL:

    That's right.

    So, if you're a college graduate, the unemployment rate is about 2.1 percent in May, the new numbers out. If you're a high school dropout, it's half of what it was during the recession, but it's still 7 percent, much higher.

  • HARI SREENIVASAN:

    And then when you break it down by race, there are wild fluctuations in unemployment that way?

  • DAVID WESSEL:

    Right. As always, about — unemployment for black people in America is twice that for white people.

    But I think what's really important is here, is that it's not that the economy is getting worse. It's just that it's getting better much more slowly. And that's the disappointing part. We weren't ready for this recovery to start losing steam.

  • HARI SREENIVASAN:

    Yes. When we talk about those chunks of time that we're looking at the jobs report, quarter by quarter, and as slow as this has been, do we know if this is a bad patch or if this is a major kind of sea shift in how much slower our growth is happening?

  • DAVID WESSEL:

    We don't know. And that's really the question.

    Is this a few months of bad patch and things will pick up later in the year, as happened in the past couple of years? People are saying, the forecasters, for what it's worth, say that the economy should do better in the second quarter than the very lousy first quarter.

    But there are some worrisome signs. Auto sales have been weak. Businesses seem to be squeezed on their profits, and they're a little uncertain about what his happening to policy, so they're not investing.

    So, it's really one of those moments where we could look back on this say just it was a bad patch, but we could look back and say this was an inflection point.

  • HARI SREENIVASAN:

    All right, one group of people who study this report this very closely, the Fed, and they're meeting soon. What does this mean? Is this sort of enough of an indicator where maybe we shouldn't make any changes?

  • DAVID WESSEL:

    I think that it looks like the Fed will not raise interest rates on June 15.

    The markets had been expecting them to raise rates. After these numbers came out today, the market has changed its mind, and Governor Lael Brainard of the Federal Reserve Board was pretty gloomy about what she saw in the numbers. So, the guessing now is maybe they raise rates in July, maybe they wait until September, but certainly not in June.

  • HARI SREENIVASAN:

    There's a sliver of a silver lining here, which is the hourly rates.

  • DAVID WESSEL:

    Right.

    The only silver lining in this otherwise dismal report was that wages are going up. Wages have risen about 2.5 percent average hourly earnings over the past 12 months. And the White House was quick to point out that, if you just look over the first four or five months of 2016, wages have been going up at better than a 3 percent annual rate.

    So, that is encouraging and that is important because it means that there's — the labor market is tightening and consumers will have money to spend, and so that's encouraging sign and one I think people weren't expecting.

  • HARI SREENIVASAN:

    And is there a distinction between part-time workers looking for work, full-time workers looking for work? How does that fit in?

  • DAVID WESSEL:

    Yes.

    So, one of the things that has been disturbing about the recovery is a very, very large fraction of workers by historic standards have been working part-time, but they tell government survey people, we really wish we were looking for a full-time job.

    So, that number has come down quite a bit since the recession, but it still remains much worse than it was before the recession. So that's one of the worrisome signs. We don't want the recovery to run out of steam before all those part-time workers who want full-time jobs can get them.

  • HARI SREENIVASAN:

    All right, David Wessel from the Brookings Institution, thanks so much.

  • DAVID WESSEL:

    You're welcome.

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