Jobs Data Bode Ill for the Future

The employment report is often said to be a lagging indicator, but some elements look toward the future and those signals aren’t encouraging.

The length of the average workweek offers clues to when companies may begin hiring. Even if the rate of decline in jobs is moderating a bit from lows hit earlier this year, the addition of new workers seems to be a way off. Before companies hire, they generally push for new workers to work more hours first. But his month, the average workweek dropped to just 33 hours, a historic low.

“The bottom line for the economy: despite signs in other areas that the recession is leveling out – most importantly, production — the labor market indicators in themselves are not yet signaling a turning point,” Harvard economist Jeff Frankel said in a blog post. Though he’s speaking for himself here, Frankel is a member of the National Bureau of Economic Research panel that demarcates the end of a recession.

Even as the recession looks like it will be around for at least a little longer, the gap the eventual recovery will have to fill gets bigger and bigger. The total number of nonfarm workers dropped to the lowest level since 2004. That means that in just 18 months this recession eliminated nearly three and a half years of job gains. That’s a lot of ground for a recovery that’s expected to be tepid at best.

Weighing on the recovery is the American consumer’s newfound thrift. Consumer spending has helped buoy past recoveries, but a lack of credit, falling home prices and a weak job market appears to have finally knocked consumers to the mat. Making matters worse will likely be falling take-home pay. Wages were flat in June and with so many people out of work, employers won’t have much pressure to drive them up soon.

A technical recovery is still likely this year, but the pain will be around for some time to come.