Diane Swonk, Chief Economist
September 1, 2010 – 7:30 a.m. CT
More Bad News on Employment
The ADP preliminary report on private sector employment dropped by 10,000 in the month of August, its first decline since January. Losses were broad based, with small and medium businesses now cutting instead of adding jobs. The only minor upside was a small increase in employment among large firms, which is where the rebound in profits was the strongest. This tracks well with the Challenger report that suggests layoffs at large firms have abated. The rest of the economy, however, is clearly exceedingly weak.
Indeed, when these figures are combined with the cuts that we are now seeing in state and local employment, the news will be even worse on Friday. Look for a loss in total payrolls somewhere between 150,000 and 200,000 in the month of August.
A double dip? The recovery is extremely weak and the risk of a double dip is on the rise. We can't call it yet, but we are getting dangerously close to the tipping point. Hence, Fed chairman, Ben Bernanke's pledge to do more, which he will (soon) and a renewed talk of tax cuts and additional stimulus from Washington. It is an easy bet that the existing tax cuts will be extended, including those for the wealthiest of Americans, as no one wants to be accused of raising federal taxes in such a weak economic environment.
The Bigger Picture: Employment always lags the recovery in the broader economy (we need a restoration of profits ahead of hiring). The subpar nature of this recovery, especially in light of the depth of the losses that we endured, makes that fact particularly hard to swallow. Moreover, the self-feeding nature of any recovery is contingent on job generation, and the longer we wait for that to occur, the more policymakers will feel compelled to act.
Knowing that financial crises are harder to recover from on paper, is much harder to live with in reality.
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