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Economic Forecasts

Businesses Hire a Bit While Government Cuts a Lot

A pattern since May of weak job growth is likely to continue the rest of this year.

The latest report on jobs shows some worrisome weakness in layoffs by state and local governments, while hiring by the private sector continues, but at a very sluggish pace. All told, it paints a picture of an economy growing at a subpar rate, with private sector jobs increasing 64,000, a bit less than expectations around 85,000. The total, including Census workers and local government jobs, showed a loss of 95,000.

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And prospects don’t appear good for improvement in the next few months. By this time in the postrecession recovery, the private sector was supposed to be taking the baton from government and building on the momentum from stimulus programs and an easy monetary policy. That’s not happening. Instead, employers remain wary that a weak economy will slide into reverse.

Tailwinds that helped growth in the past 12 months are fading. The tax credits for first time home buyers and cash-for-clunker cars plus the hiring of Census workers are all history. Questions about documents used in foreclosures threaten to stall housing’s recovery, and businesses are not boosting inventory.

At the same time, shrinking tax revenue -- along with an end to stimulus funds -- is starting to take a toll on jobs in state and local governments. They showed a net job loss of 83,000 in September as teachers and other public sector workers were laid off.

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Elsewhere, job losses occurred in manufacturing and construction, while gains came in health care, temporary employment and restaurants and bars.

Skewing the overall picture again is the up-and-down pattern of using temporary workers for the 2010 Census. Jobs for those workers fell by 77,000 last month, and they’re just about all off the federal payroll after a peak of 564,000 last May.

Looking at the details, there are a few hopeful signs. Companies, though not hiring much, are slowing layoffs. And the filing of initial claims for unemployment insurance, after shooting up in July and August, seems to be returning to a path of gradual decline that has been the case for most of this year. Another positive is that hours worked held steady at 34.2.

When the books close on hiring this year, about 1 million net new jobs will have been created. An early estimate for 2011 is creation of about 1.5 million jobs. That will keep the unemployment rate, which remained at 9.6% last month, around that point at the end of this year, and not much lower over next year.

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