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Economic Forecasts

Hiring, Economic Growth in a Standoff

Look past Census fluctuations and you’ll find the private sector adding jobs, carefully.

Despite weak-kneed hiring in June, we expect job growth of about 1.5 million for the year. That’s more than enough to absorb new entrants to the labor force over the course of the year, but far from indicating robust economic growth.

The fact is, the economy is stuck in slow gear: Growth would accelerate if hiring picked up. But businesses remain wary, fearing another downturn, so they’re reluctant to hire. That reluctance keeps job creation modest, which in turn puts a damper on economic growth.

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A closer look at what happened in June indicates that the picture isn’t as dismal as it might first appear. Overall, the Labor Department reported that job growth declined by 125,000. But that is largely due to the unwinding of temporary hiring of Census workers earlier this year. The Census Bureau shed 225,000 jobs over the past month.

Looking only at the private sector shows a more accurate employment picture: A net gain of 83,000 jobs. That’s an improvement over May’s meager 33,000 increase but a clear slowdown from the spring when total employment increased an average of 200,000 a month in March and April.

The drop in the unemployment rate from 9.7% in May to 9.5% in June is also misleading, driven, as it was, by a huge drop in the labor force, which includes people who either are working or say they are actively seeking employment. Thousands of folks dropped out of that count in June, when they maxed out on the unemployment benefits they could collect. To qualify for unemployment checks, jobless folks must say they are job hunting. Without the incentive of the check, many became discouraged again and stopped looking for work. Between now and year-end, we expect little additional change in the unemployment rate.

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One reason for the recent slowdown in hiring and economic growth is the end of tax credits for purchasing homes and appliances. Another is the European financial crisis and its spillover effect on U.S. exports. As conditions in Europe stabilize, job growth should pick up a bit and translate into an increase of 3.5% in gross domestic product this year.

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One hopeful note in the June figures: Hiring of temporary workers grew by 21,000. That’s the ninth straight monthly increase -- an indication that employers are increasing output. But it’s also a positive that the number of temp hires in June was 10,000 lower than in May: Businesses hiring more temp workers means fewer people are being hired on a permanent basis. On a related note, the number of part-time workers dropped by 525,000, potentially indicating that more of them found full-time jobs. The total number of part-timers who want full-time work remains high, however.

Offsetting the good news: The length of the average workweek declined by 0.1 hours. The number of hours worked had been inching up this year, putting more money in paychecks, a necessary ingredient for consumer spending and overall growth.

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