July Jobs Numbers Disappoint

ADP, a leading payroll services company, is reporting that private companies added 114,000 jobs in July. Many analysts had projected an increase in hiring from June, but it is not likely that the unemployment rate will decline even if job growth rose sharply.  ADP’s forecasts are frequently used to measure how the labor economy is performing, but the firm has had its share of missteps, with some estimates on target and others varying sharply from actual government-issued data.  In June, ADP projected that more than 140,000 jobs were added.  The official government report showed that the labor economy had experienced anemic growth during the month, with a net total of only 18,000 jobs created.  Many economists and industry believe that private employers likely added more jobs than previously projected during July.

Not all the news was good, however. Employers announced 66,414 planned layoffs in July, an increase of 60.3 percent over the 41,432 announced in June, according to a report from consultants Challenger, Gray & Christmas, Inc.

Any gain or loss in jobs above 100,000 is considered statistically noteworthy by economists.  Expectations were rather low, however, given the recent bad news about GDP, consumer spending and manufacturing recently.  “We still expect that actual payrolls may have risen by around 50,000 in July,” according to Capital Economics.  “That would be better than the previous two months, but hardly reason for cheer.”  “This pace of job creation usually implies a steady unemployment rate,” according to ADP’s employment report.  Capital Economics said that the latest job gains would not reduce the unemployment rate.  “We are in a process of discovery over whether the slowdown we have seen since March in the U.S. is over and we are entering a new phase of faster growth or that we are in a slump,” said Francisco Torralba, economist at Morningstar Investment Management.

Recently released Institute of Supply Management (ISM) numbers indicate an economy that continues to move barely at a snail’s pace.  The non-manufacturing ISM report showed expanding business activity, new orders and employment, but at a slowing pace.  Planned layoffs reached a 16-month high while the private sector added 114,000 jobs in June, most of them in the small business and the services sector.  “Today’s report shows modest job creation for the month of July at a rate of half what is needed for meaningful employment and economic recovery,” said Gary C. Butler, Chief Executive Officer of ADP. Approximately half of June’s private sector job additions came from small business, which added 58,000 employees, and medium businesses (+47,000).  These statistics mesh with the Challenger, Gray & Christmas job-cuts report, which showed planned layoffs hitting a 16-month high on a “sudden and unexpected burst” in downsizing by large companies.  Merck, Borders, Cisco, Lockheed Martin, and Boston Scientific announced plans to cut 38,000 jobs in July, 58 percent of the 66,414 announced.   According to Dave Rosenberg, who is viewed by many as a perma-bear, it will be really hard for a self-sustaining recovery to pick up.  “The overhang of excessive debt burdens is still with us today and the problem with the government stimulus programs that were put into place is that they were not designed properly; the multiplier impacts never did kick in,” said Rosenberg. “So we can’t ‘grow’ our way out.  Now government sectors in nearly every jurisdiction are tightening their fiscal belts.  Companies and banks retain their extreme stash of cash, if we dare suggest, because they see the economic environment that we do and want to survive the next downturn.”

In the meantime, 400,000 Americans filed for first time unemployment claims in the last week of July, according to the Department of Labor.  Coupled with a revision of initial claims in the previous week to 401,000, the latest update means claims have yet to dip below the 400,000 mark for 17 weeks.

Writing for The Hill, Vicki Needham says that “Economists say these figures are in line with the economy’s slowing expansion and are expecting growth to accelerate through the second half of the year as temporary factors such as high gas prices fade.  While companies aren’t hiring, consumers are being cautious with their money, spending less for the first time in 20 months.  Consumer spending rose only 0.1 percent in the 2^nd quarter and households tucked away more savings.”