Disappointing June jobs report casts shadow over recovery

Reporting from Washington —  A disappointing new jobs report provided the latest and sharpest sign yet that the economic recovery may be losing momentum and that few industries are ready to spur job growth to replace the millions lost during the recession.

The June employment report released Friday by the Labor Department suggested that with stimulus money running out, Washington in the mood to retrench and the private sector still struggling, it probably will take years to overcome the 7-million-plus jobs deficit.

“It all paints a picture that [while] we’re not technically contracting anymore, it’s just excruciatingly slow growth,” said Heidi Shierholz, a labor economist at the Economic Policy Institute in Washington.

Private employers added a meager 83,000 jobs in June and reduced the average work hours and earnings of all employees. That sluggish growth came as the government laid off 225,000 temporary census workers, pushing the total number of Americans who lost jobs last month to 125,000.

The overall job losses reversed five straight months of gains and was the biggest monthly fall in payroll jobs since October.

Surprisingly, the unemployment rate edged down to 9.5% in June from 9.7% the previous month. But the rate drop came as hundreds of thousands of workers dropped out of the labor market last month, which means they were no longer counted as officially unemployed by government statisticians.

Some analysts viewed the declining unemployment rate, which had hit 10.1% in October, as a hopeful trend of stabilizing joblessness.

But other economists believe that the figure will climb back up and stay at or very close to 10% until at least early next year.

“We had a modest decline in unemployment, which is essentially a statistical fluke,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

“It’s kind of discouraging. There had been evidence the economy was picking up in the spring. As it stands now … most of the arrows are pointing down.”

The most recent data on housing, manufacturing and car sales all show weakening activity, and much of the remaining federal stimulus money will fade by the end of the year, removing a major support to the economy.

Many employers say they won’t add workers until they see the economy on firmer footing.

Jim Becker, who owns a technology-support company in the eastern Pennsylvania town of Stroudsburg, said that sales had come back this year but that almost all of the new work was tied to federal stimulus money.

“If I got a feel that my income, my business, was changing to a broader market and shifting out of stimulus, I would feel much more comfortable bringing one of my interns on full-time,” he said.

Friday’s report added to fears that the nation was moving closer to a double-dip recession, although most economists said that probability remained low.

Politically, the gloomy employment picture was more bad news for President Obama and congressional Democrats, with some analysts saying the latest report would freeze in voters’ minds the view that Obama’s policies are failing and the country is on the wrong track.

There were renewed calls from liberal policy analysts, labor unions and economists for additional government stimulus to keep the recovery on track.

But with many Americans deeply troubled by large federal budget deficits — and leading European nations pushing for austerity rather than more stimulus — optimism was short that lawmakers would approve any major new stimulus programs.

“It’s a big question right now,” said Rep. Daniel Lipinski (D-Ill.), expressing frustration that even relatively small funding bills were getting stalled in Congress largely because of deficit concerns. “What should be done next?”

Last month, Lipinski and others in the House passed a bill to spur lending to small firms, which historically have been the major source of new jobs. It included up to $2 billion to states to increase loans to small employers.

“But because of concerns about the deficit, anything that’s moved in legislation isn’t as big as it might have been,” Lipinski said. And nobody knows when — or whether — it would be approved by the full Congress.

U.S. government payrolls, which swelled earlier this year, stand to fall further in the coming months as the Census Bureau lets go more of the nearly 600,000 temporary workers hired for the decennial population count. Budget-strapped local and state governments are slashing jobs too, with little prospect of major aid from Washington.

That leaves private-sector hiring, which has turned anemic and now looms as the single biggest threat to the recovery. Job and income gains underpin consumer spending and confidence on the part of individuals and businesses.

After accelerating in the first four months of this year, with private job growth reaching 241,000 in April, the pace of hiring has slowed sharply.

Amid worries about Europe’s debt crisis and the effect of receding government subsidies on housing and other industries, businesses in the U.S. added just 33,000 jobs in May.

And the 83,000 additions in June were less than the 110,000 that analysts, on average, were projecting for that month.

What’s more, the majority of the jobs added last month were in two lower-paying industries — the leisure and hospitality and the temporary-staffing sectors.

In past recoveries, a boom in the temporary-help industry was a precursor to broader hiring of employees, but that may not be the case this time, said Joseph Massoud, chief executive of Compass Diversified Holdings, the parent of Staffmark, a temporary-employment firm.

The reason, he said: Many companies now see temporary and contract workers as a larger permanent share of their overall employment, as is the case in Japan and Western Europe.

“I think we’re in for tepid employment growth for the next few years,” Massoud said of overall U.S. hiring.

Manufacturing was the economic star early on, creating an average of 25,400 jobs in the first five months of this year. But factory payroll growth slowed to 9,000 in June, and outside of fabricated metals and machinery, most manufacturing sectors trimmed employment last month, said Dave Huether, chief economist at the National Assn. of Manufacturers.

“Part of the [manufacturing] slowdown is being driven by a number of government stimulus programs that have either expired or are slowing down,” he said in a written analysis of Friday’s report.

“The deceleration in private-sector job growth over the past several months is a concerning signal that the economic recovery is hitting a rough patch at midyear,” Huether wrote.

The expiration of the federal homebuyer’s tax credit, meanwhile, already has whacked home sales. And the construction industry shed 22,000 jobs last month, even with stimulus funds pouring into highway and other heavy construction projects.

Health and education services added 22,000 jobs over the month, but healthcare has slowed partly because of declining employment at hospitals, which are feeling the pinch from tighter state and local government budgets.

Other major service industries, including financial activities and information, have yet to see an upturn in hiring.

Analysts reckon that about 125,000 new jobs a month are needed to keep pace with the expanding population and labor force. But the economy needs double that amount to bring sustained declines in the unemployment rate.

Among the bright spots, the June report showed an improving employment picture for college graduates. The unemployment rate for this group dropped to 4.4% last month from 4.7% in May.

don.lee@latimes.com