Where the Jobs Aren't: Main Street
Bennett Construction in Fruitland, Md., saw the economy improve enough late last year and into the early months of this year to hire seven new employees. It was not a lightly made decision. Each new worker meant higher unemployment insurance taxes, workers' compensation insurance, and new health insurance premiums.
"We're thrilled to give people jobs . . . but it's a hardship," Janet Bennett, who works for the family-run business, told The Washington Post last week. And there's no guarantee the company can keep those employees on, let alone hire new ones. "You just never know what it's going to be like a year from now," she said.
Bennett's comments jumped out at me because she captured the sentiments of countless small business owners. They have watched the economy's modest gains begin to ebb approaching mid-year, forcing many to shelve any plans they had to hire new workers. The point was driven home like a drone-guided missile when the latest employment figures were released last week.
The economy produced a scant 54,000 jobs in May, below economists' forecast for 165,000 new jobs, well below the average monthly gain this year of 182,000 jobs and drastically off April's pace of 232,000 new jobs. The unemployment rate ticked up to 9.1 percent from 9 percent.
Some observers say the so-called "soft-patch" in the recovery was triggered by rising energy prices, recent severe weather in the Midwest, and the devastating effects of Japan's earthquake and tsunami. But the federal Bureau of Labor Statistics counters that view. It says the dismal figures were caused by a general weakening in the economy rather than temporary "supply chain disruptions."
The bureau, which collects the employment data, said the hiring decline was evidenced across many industries, not just manufacturing as is typical with supply chain disruptions. The only good news is the numbers reflect only one month and not a trend -- yet. But coupled with other recent declines in home prices, auto sales, and consumer spending, the figures should sound a clear warning bell to policy-makers.
Something needs to be done quickly and on a scale large enough to give small businesses the confidence to hire workers, and entrepreneurs the resources to start new businesses. In every prior recession leading up to this one, small businesses have led the economic recovery. But that's not even close to happening now.
According to the latest National Federation of Independent Business (NFIB) survey of small business owners, 12 percent (seasonally adjusted) reported unfilled job openings, down 2 points from last month. In the next three months, 13 percent plan to increase employment, down 3 points, and 8 percent plan to reduce their workforce, up 2 points.
"That yields a seasonally adjusted net negative 1 percent of owners planning to create new jobs, a 3-point loss from April," said William C. Dunkelberg, the NFIB's chief economist. "After solid job gains early in the year, progress has slowed to a trickle," he added. "Meaningful job creation on Main Street has collapsed."
To add some perspective, the economy needs to add 365,000 net new jobs a month for at least a year to cut unemployment to 6 percent, according to University of Maryland economics professor Peter Morici. But that would still be higher than the 4.4 percent rate in May 2007 before the recession began and well off the 4 percent rate in May 2000 before the dot-com crash. The unemployment rate never got above 7.8 percent in the previous two recessions. Yet, it's been higher than that for 28 consecutive months during the current downturn, rivaling the Great Depression for sustained high unemployment.
Even more troubling, the number of workers who have been jobless for more than six months increased in May to 45.1 percent from 43.4 percent, not far off from the recession's record high of 45.6 percent last year, according to the Economic Policy Institute (EPI), a Washington-based think tank that tracks the economy. That adds up to 6.2 million workers.
The average workweek is another key measure of the economy's strength. It held steady at 34.4 hours in May, growing only two-tenths of an hour over the last year, according to the EPI. It hit a low, 33.7 hours, last June. Typically, as demand picks up in a recovery, the average will rise until demand triggers new hiring. But the figures suggest that demand isn't rising fast. Indeed, 75 percent of small business owners in the NFIB survey said lack of sales is their biggest problem.
Back when the financial crisis swept the economy over a cliff, the government, of course, was swift to act -- to save the banks. It pumped more than $1 trillion into the financial system to keep it afloat and, yes, it also provided some stimulus spending for the economy. But the latter was too little, too late. Now, those programs have wound down and the government has become part of the problem -- and not just because of the deficit.
The end of federal aid to state and local governments has triggered a surge in public sector layoffs. In May, local governments cut 28,000 jobs alone, including teachers, firefighters, and police, adding to the loss of more than half a million public sector jobs since August 2008. That's drained the economy of as much as $20 billion, based on an average annual salary of $40,000 per worker.
In all, the labor market remains 6.9 million jobs short of where it was at the official start of the recession three years and five months ago, according to the EPI. Add if new workers entering the economy for the first time are counted, the economy needs to add 11 million jobs just to get back to the 5.0 percent unemployment rate on the eve of the recession in Dec. 2007.
In short, job growth needs to accelerate dramatically. Instead, the recovery is almost dead in the water and Congress has shown little inclination to provide the needed stimulus to get it back on track. Meanwhile, the Obama administration has been cowed by the deficit hawks into inaction.
Only Fed Chairman Ben Bernanke seems attuned to the seriousness of the problem. There is already talk of another round of "quantitative easing" by the Fed to prop up the economy. But as the last round, or QE II, proved, that won't be enough on its own. Are we really ready for a long, torturous period of stagflation, or even worse, deflation? It sure seems so. Welcome to Hooverville.
