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June Swoon: 125,000 Jobs Lost in June

Weak Employment Report Adds to Fears of “Double-Dip” Recession
By Masao Suzuki |
July 4, 2010
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San José, CA - On Friday, July 2, the U.S. Department of Labor reported that 125,000 jobs were lost in June. While the official unemployment rate fell from 9.7% in May to 9.5% in June, this was due to the 650,000 people that gave up looking for work and were no longer counted as unemployed. These signs of weakness in the labor market followed reports that housing and car sales were also weak in June. Altogether these reports increase the danger that the economy could slide back into a “double-dip” recession.

The large job loss in June was mainly due to the Census Bureau cutting 225,000 temporary jobs. This was partially offset by private businesses creating 83,000 new jobs. This is a very weak rebound compared with past recessions. Following the deep 1981-1982 recession, businesses created an average of more than 200,000 new jobs per month for the first six months of 1983. It took only ten months for the jobs lost during the recession to come back once businesses started hiring again. In contrast, businesses have added less than 100,000 new jobs each month this year. At this rate, with almost eight million jobs lost because of the recession, it will take eight years to gain back the lost jobs.

The unemployment gap between whites on one hand, and African Americans and Latinos on the the other, widened in June as compared to May. The official unemployment rate for African Americans was 6.8% higher than whites, at 15.4%, and the rate for Latinos was 3.8% higher, at 12.4%.

While the official unemployment rate fell from 9.7% in May to 9.5% in June because fewer people were looking for work, if these people were counted as unemployed, the unemployment rate would have actually increased to 9.9%. The drop in what economists call the “labor force participation rate” meant that last month there were about three million fewer people in the labor force than if the labor force participation rate were the same as the expansion years of 2002-2007. The number of jobless workers who said that they wanted to work but didn’t look in June (marginally attached and discouraged workers) rose by more than 10% from the month before. A broader measure of unemployed, jobless who stopped looking for work, and part-time workers who can’t find full time work stood at 16.5% in June, or one of every six workers.

Other signs of a weak labor market were that weekly hours of work fell, showing that employers were cutting back on the work week. The typical unemployed worker was out of work two weeks longer in June (25.5 weeks) than in May (23.2 weeks). In addition, the Labor Department reported on July 1 that the four week average of new claims for state unemployment insurance benefits rose to 466,500, the highest level since March.

Economic weakness was not just in the jobs report. The National Association of Realtors reported on July 1 that pending sales of existing homes fell by 30% in May, following the end of the Federal home buyers tax credit. This indicates that home sales would be much weaker in June. The June jobs report also reflected the weak housing market as construction jobs fell by 22,000. Car sales were also off in June. Total car sales of both U.S. and foreign-owned car companies fell 4.5% to 11.2 million, from 11.6 million (at an annual rate) in May.

Republicans are leading the charge to end programs to counteract the effects of the recession. They have argued that unemployment insurance keeps people from taking jobs. But last month when Republicans in the Senate blocked funding and cut more than a million people from the Federal Extended Benefits (EB) and Emergency Unemployment Compensation (EUC) programs, more people stopped looking for work. Republicans have also blocked funding for the COBRA program to help the unemployed keep their medical insurance, and funding for states to pay for medical care for the poor. This will lead to even more home foreclosures, more people without health insurance, and greater cuts in state spending.

State and local governments and schools cut almost 10,000 jobs in June, reflecting their on-going budget woes. Over the last year, state and local governments and schools have cut almost 200,000 jobs. In contrast, between 2002 and 2007, state and local governments added over 150,000 jobs a year. Job cuts are likely to increase when Federal stimulus moneys designed to help state and local governments run out at the end of the year. Not only are jobs being lost, but state and local government workers and teachers are facing cuts in pay, benefits, and hours worked, leading to cuts in government services and education when they are needed the most.

A growing worry is that this wave of belt-tightening at the local, state, and Federal governments, along with similar efforts in Europe and Japan, will throw the economy back into a decline, or what is known as a “double-dip” recession. This happened during the Great Depression, when efforts to cut the Federal budget deficit led to a sharp recession in 1937-1938, causing the unemployment rate to rise from 14.3% to 19%.