Employers Get the Jitters
If job growth in May was disappointing, June’s performance, at first glance, is likely to be worse. As the national Census winds down and those temporary government jobs start to disappear, odds are total U.S. payroll figures will once again decline.
But on closer inspection, the underlying trend of modest gains will remain intact. Payrolls soared by a whopping 431,000 positions in May -- at first blush, not disappointing at all. In fact, that’s the best monthly showing since a 472,000 surge in March of 2000. But both in March 2000 and in May 2010, hiring was hugely inflated by the temporary hiring of Census workers. Last month, Census workers accounted for 411,000 jobs created, leaving just 20,000 jobs created by the rest of the economy. That’s about one-sixth the pace averaged over the previous three months (136,000 jobs a month) and down sharply from the 223,000 non-Census jobs gained in April.
The cause of the May slowdown in private company hiring seems clear: heightened anxieties around the financial crisis in Europe and weird stock market gyrations. In this case, timing exaggerated the impact. The government conducts its jobs tally on the week of the month containing the 12th day. Last month, that extended from May 9th to the 15th, just days after the bone jarring May 6th “flash crash,” when the Dow Jones Industrial Average posted its worst intraday decline ever -- nearly 1,000 points. That same week, investors were dumping Greek bonds en masse, with other European governments also experiencing capital flight. On Monday, the 9th, the International Monetary Fund and the European Union announced a giant bailout, with the European Central Bank and the Federal Reserve each playing supporting roles. In a nutshell, it was a pretty hairy time and not exactly an environment conducive to risk taking, which includes hiring workers.
Details of the May employment report corroborate the angst felt by employers. The hiring of temporary workers, for example, had diminished over each of the previous five months, as employers increasingly gained the confidence to add permanent positions to payrolls. But temporary hiring rose again in May, implying that, although workers were needed, employers were playing it safe and holding off on long-term commitments. In May, workers also put in more hours, including overtime, reflecting the same desire by employers to get more done without taking the risk of overstaffing. Financial jitters may have also discouraged job seekers: the labor force actually shrank in May, helping to drive the jobless rate to 9.7% from 9.9% in April.
No doubt, the European financial crisis and resulting fiscal consolidation will mean slower economic growth there, curbing demand for U.S. exports and dampening gains here. But the orchestrated bailout seems to be working and is likely to stanch the contagion fears that were so intense just one month ago. Moreover, although signs of improvement are absent, financial measures of risk aversion -- corporate bond spreads, equity prices, interest rates on short-term lending between banks -- all evened out in the early days of June, after increasing in May.
As concern about the worst-case outcome of the European crisis fades, private hiring will again pick up. In June, it won’t be enough to offset a big drop in Census jobs, but it will make clear that jobs are slowly being recovered and the economy is on the mend.