Anemic Job Growth Holds Back Economy

Economic Forecasts

Anemic Job Growth Holds Back Economy

There are some bright spots amid the general gloom.

Don’t read too much into the drop in the country’s unemployment rate in January. The decline from 10% in December to 9.7% last month appears to reflect the kind of bigger-than-usual variation that occasionally shows up in the government’s collection of household unemployment figures because of variation in the samples from month to month. Odds are it will be smoothed out over the next few months.

The fact is, hiring remains stubbornly slow, with an additional 20,000 jobs disappearing from total U.S. employment in January, despite government hiring for the Census. That points to an economy that will be stuck in low gear for at least a few more months as scant hiring dampens consumer spending, which discourages businesses from investing.

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Still, there’s light on the horizon: Current workers are getting more hours -- the average workweek ticked higher in January, from 33.2 hours to 33.3. More temporary workers are going on payrolls -- the fourth straight month of growth. In January, temp hiring jumped 52,000. Manufacturers added to payrolls that month, the first time since January 2007. And Census hiring—a mere 9,000 in January -- will continue to climb in the months ahead, providing wages for a total of 700,000 to 1 million workers. Most jobs will last four to six weeks.

Most important: Soaring productivity will lead inevitably to more hiring. Firms simply can’t continue to squeeze more output from the same or fewer workers.


Because productivity typically surges as the economy shifts from recession to recovery, the fourth quarter gain in productivity -- at an annualized rate of 6.2%—is no surprise. It’s the vigor of productivity growth throughout 2009 -- including the first half of the year, when the recession was still in full swing—that is unusual. Robert Gordon, a Northwestern University professor and an expert on productivity, says that reflects a fundamental change in the labor market, noting that “the great bubble of productivity” in the past two quarters is due partly to companies vastly overdoing cost cutting.

As a result, we expect hiring to pick up shortly, with about a million workers added to total employment by year-end. In addition, firms will whittle away at the huge number of part-time employees -- about 8.3 million—who would prefer to work full time.

Finally, note that revisions to previous reports on jobs indicates that about 900,000 more jobs were lost during the 12 months ending in March 2009. But the upward revision has an upside. While it means total disappearance during the recession, which began in December 2007, was greater than previously thought at about 8.4 million, it also means that the improvement from last year to this is even more marked.