Signs of solid growth in the overall economy contrast with a painfully slow recovery in the employment market. This disconnect can be caused by multiple factors, including companies cutting costs. See the following article from Money Morning for more on this.
While a surge in corporate profits reflect an improving economy, several government reports show that the United States continues to be plagued by a lingering “jobless recovery.”
Most analysts, including President Barack Obama, are predicting a strong May jobs report due out today (Friday) with more than 500,000 new jobs added to the U.S. economy.
“We expect to see strong jobs growth in Friday’s report.” Obama predicted in a speech in Pittsburg on Wednesday.
Still, the numbers are likely to be inflated due to temporary hiring by the U.S. government for the 2010 Census, and overall unemployment isn’t expected to ease significantly.
Most economists expect the unemployment rate to stubbornly hover around 10%, reflecting the disparity between an overall economy that shows signs of solid growth and a job market that continues to struggle.
According to a national employment report published Thursday by payroll giant Automatic Data Processing Inc. (Nasdaq: ADP) and consultants Macroeconomic Advisers, private-sector jobs in the U.S. increased by 55,000 last month. Economists had expected ADP to report a job gain of 75,000 in May.
Separately, the number of U.S. workers filing new claims for unemployment benefits fell last week by more than expected, but not by enough to signal the job market is on the path to recovery.
The government said in its weekly report Thursday that initial claims for jobless benefits fell by 10,000 to 453,000 in the week ended May 29. Economists who were surveyed by Dow Jones Newswires had predicted claims would decrease by 5,000.
Despite this latest drop, the four-week moving average – which aims to smooth volatility in the data – rose by 1,750 to 459,000. Total claims lasting more than one week also rose.
“Claims would suggest the underlying state of the job market remains somewhat fragile,” John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston told Bloomberg News. “There is a disconnect given the improvement we are seeing in economic growth.”
The disconnect may have several sources, Richard Berner, co-head of global economics at Morgan Stanley & Co. in New York, wrote in a May 28 note.
One reason is the extension of benefits – up to 99 weeks in some states – raises the incentive to file. While half the claims are typically rejected, the jump in claims in March and April may reflect more ineligible filers.
An increase in filings by construction workers and by temporary government employees who are helping with the census may also be boosting claims, Berner wrote.
Another report released by the Labor Department earlier this week showed hundreds of metropolitan areas faced tougher job prospects in the month of April compared with one year ago. The unemployment rate was higher in 291 of the 372 metropolitan areas covered by the report.
Companies continued to cut costs at the start of the year even as the economic recovery gained momentum, meaning they got more from existing work forces.
Even though worker productivity figures for the first quarter were revised downwards yesterday, new Labor Department figures showed that efficiency climbed 6.1% over the past four quarters, the biggest 12-month gain in nine years.
At the same time, unit labor costs – a key gauge of where prices are heading – declined at a 1.3% pace, showing employers squeezed more from remaining staff to control expenses.
The productivity gains should help keep prices in check, allowing the Federal Reserve to keep short-term interest rates at or near zero to support the economy and give unemployment time to come down.
As the uneven economic recovery works its way through different segments of the business landscape, some companies are adding workers while others are shedding them.
Lowe’s Cos. Inc. (NYSE: LOW), the second-largest U.S. home improvement retailer, said it is adding more than 1,400 positions for employees to visit customers’ homes to sell them windows, doors and other products, and will fill those jobs internally and by taking on new employees.
Meanwhile, Palo Alto, California-based Hewlett-Packard Co. (NYSE: HPQ), the world’s largest personal- computer maker, plans to eliminate about 9,000 jobs and retool its computer-services business. The Hershey Co. (NYSE: HSY), the 116-year-old chocolate maker based in Hershey, Pennsylvania, may cut 500 to 600 jobs from a historic plant that produces chocolate Kisses.
This article has been republished from Money Morning. You can also view this article at Money Morning, an investment news and analysis site.