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What Will Renew Consumer Confidence?
by Paul Grasso, August 19, 2010
There is no denying it; these are challenging times. This recession has been so deep and long-lasting that it has now affected a great many people who have been employed for decades. Some of these individuals may never before have known unemployment. It has affected many who believed that it would never happen to them.
Over 1.5 million Americans have now been unemployed for 99 weeks or longer. With each passing week, their pessimism increases and their job skills erode.
Unfortunately and in spite of recent upticks, indicators are that the economy is worsening and more economists are now predicting a double-dip recession. Not helping matters was a recent labor report indicating that new applications for unemployment benefits rose to the highest level in almost six months.
The United States Department of Labor reported that first-time claims for unemployment benefits rose by about 2,000 to a seasonally adjusted 484,000, the highest total since February. Based on the last few reports, analysts had been predicting that first-time claims would fall.
The increase in applications for unemployment benefits suggests that companies are not adding jobs fast enough to lower the 9.5 percent unemployment rate. The latest data is an indication that companies are still not hiring and that some fear that employers may be going back to reducing payrolls. It does not seem likely that employers will increase employees any time soon. Hence, the fear of a double-dip recession. The jobs report "represents a very adverse turn in the labor market", Pierre Ellis, an economist at Decision Economics, wrote in a note to clients.
Perhaps, more telling was a report that American corporations are sitting on a record $1.6 trillion, in cash, mostly from salary and benefits savings as a result of layoffs during the height of the recession. So, money doesn't seem the issue.
Why are businesses slow to hire and what are they waiting for? There seems to be three reasons: (1) employers are uncertain about how much a new employee is going to cost long-term. The potential of additional health care costs appear at the top of their list of concerns. (2) American consumers are not spending or borrowing money at the rate they have in the past. No increases in buying translates to no increases in manufacturing.
Working Americans are worried about losing their jobs and about the uncertainty of the stock market. Americans simply do not have confidence in the future. Their level of pessimism and their increasing level of uncertainty about their economic futures are causing them to become more frugal. Consequently, they refuse to borrow or spend. Americans saved 6.2% of their disposable income this spring, a level that has not been seen in recent economic history. Before the recession, the savings rate remained was more like 1.2%. (3) Businesses also have uncertainties about an economic recovery that always seems to be "just around the corner."
Some economists now believe that the recent small spurt in hiring was simply to replenish depleting inventories and not the beginning of a more sustained recovery.
In a Wall Street Journal article, Alice Rivlin, who served as the Fed's No. 2 official in the late 1990s, summed it up quite nicely. "You can't force people to take out a loan or to spend money that they don't want to spend."
The task will be to make Americans more confident about the future. And that's the conundrum. Americans have cut back on spending, but spending is what drove the economy since the mid-1990's. If Americans are going to start spending again, it will only be after they have confidence that their jobs are secure, that there is less volatility in their retirement savings and that the value of their home has stabilized.
Meanwhile, New York State is showing some private sector growth in July, which added 29,000 private sector jobs (+0.4%), the State Labor Department reported today. This represented the largest monthly increase since April 2005. New York nonfarm jobs also increased, by 10,500 in July.
New York State's seasonally adjusted unemployment rate was unchanged at 8.2% in July 2010. The number of unemployed New York State residents dropped slightly, falling from 798,200 in June to 796,700 in July. The statewide labor force fell by 28,700 over this period.
"New York State's labor market regained some traction in July, adding 29,000 private sector jobs. In addition, our unemployment rate held steady at 8.2%, remaining well below the nation's rate of 9.5%," said Norman A. Steele, Deputy Director of the Division of Research and Statistics.
Highlights among NYS sectors with job gains since July 2009
- Leisure and hospitality added the most private sector jobs (+27,400) of any sector over the year. Job gains within this sector were greatest in accommodation and food service (+18,300).
- The other services sector had the second largest increase in jobs (+22,100) over the past year. Those job gains were concentrated in religious, grantmaking, civic, professional and similar organizations (+22,300).
- The job count also increased over the year in educational and health services (+20,400). Within that sector, job gains were greatest in health care and social assistance (+21,100).
- The job count also increased over the year in professional and business services (+8,000). Sector gains were focused in administrative and support services (+6,000).
- The job count also grew over the year in natural resources and mining (+100).
Highlights among NYS sectors with job losses since July 2009
- Over the past year, government lost the most jobs (-66,000) of any sector in the state. These job losses were concentrated in local government (-73,500).
- Trade, transportation and utilities had the second largest employment decline (-14,800) over the past year. Sector losses were concentrated in wholesale and retail trade (-11,200).
- Construction had the third largest employment decline (-9,800) between July 2009 and July 2010. Sector declines were in specialty trade contractors (-11,300).
- The job count in manufacturing slid over the past year (-8,600). Sector job losses were largest in non-durable goods (-4,800), especially apparel manufacturing (-3,000).
- The job count also fell over the year in financial activities (-7,200) and information (-3,500).
Change in Jobs by Sector, July 2009 - July 2010:
| Sectors With Job Gains: | |
| Leisure & Hospitality | +27,400 |
| Other Services | +22,100 |
| Educational & Health Services | +20,400 |
| Professional & Business Services | +8,000 |
| Natural Resources & Mining | +100 |
| Sectors With Job Losses: | |
| Government | -66,000 |
| Trade, Transportation & Utilities | -14,800 |
| Construction | -9,800 |
| Manufacturing | -8,600 |
| Financial Activities | -7,200 |
| Information | -3,500 |
The unemployment figures for the region are:
| July 2010 | June 2010 | July 2009 | |
| New York State | 8.4% | 8.1% | 8.8% |
| United States | 9.7% | 9.6% | 9.7% |
| Clinton | 9.8% | 9.7% | 9.3% |
| Essex | 7.3% | 7.8% | 7.5% |
| Franklin | 8.0% | 7.9% | 7.9% |
| Hamilton | 5.2% | 5.9% | 4.5% |
| U-6 | 16.5% | 16.6% | 16.5% |
June 2009 - June 2010
| Sectors With Job Gains: | |
| Educational & Health Services | +23,900 |
| Leisure & Hospitality | +23,000 |
| Other Services | +7,200 |
| Government | +4,700 |
| Sectors With Job Losses: | |
| Trade, Transportation & Utilities | -15,500 |
| Construction | -14,500 |
| Manufacturing | -13,900 |
| Financial Activities | -12,700 |
| Information | -4,800 |
| Professional & Business Services | -1,700 |