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In this Monday, June 24, 2013, photo, a recruiter waits to meet with job seekers at a career fair, in King of Prussia, Pa. The Labor Department reports on the number of Americans who applied for unemployment benefits in the last week of July on Thursday, Aug. 1, 2013. In the previous week, applications rose to 343,000. Weekly applications can be volatile in July because of summer shutdowns at auto plants that can cause temporary spikes in layoffs. Still, the broader trend has been favorable and consistent with steady job growth. (AP Photo/Matt Slocum)
Employers aren’t cutting, or adding, many staffers
First Published Aug 01 2013 11:58 am • Last Updated Aug 01 2013 11:58 am

WASHINGTON • Companies have all but stopped laying off workers. They just aren’t hiring many.

When the government issues the July employment report Friday, it will likely show another solid month of job growth. But the job gain can be misleading because it’s a net figure: The number of people hired minus the number who lose or quit jobs.

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When employers are cutting few workers, as they are now, it doesn’t take many hires to create a high net gain.

Last week, the number of Americans applying for unemployment benefits fell 19,000 to 326,000, the Labor Department said Thursday. That was the fewest since January 2008.

Those applications reflect layoffs. And layoffs have averaged 1.65 million a month this year through May, even fewer than the 1.77 million average in the pre-recession year of 2006.

So few people are losing their jobs that it’s easy to forget that the job market isn’t yet healthy. The unemployment rate remains a still-high 7.6 percent — far more than the 5 percent to 6 percent associated with a normal economy.

According to a survey of economists by FactSet, the economy likely added 183,000 jobs in July. Yet the picture isn’t as bright as that net gain might suggest. Consider why a net gain can be deceiving:

Suppose a company cut 40 workers and hired 50. Net gain: 10 jobs. But say it instead cut only 10 and added 30. It would have hired fewer workers. Yet it would have created twice the net job gain — 20.

Similarly, the Labor Department’s monthly net job gain can look healthy despite only modest hiring. As layoffs have steadily declined, the economy has been generating a 202,000 net jobs a month this year, up from an average 183,000 in 2012.

"The layoff side of the employment equation remains stable," Jill Brown, an economist at Credit Suisse, wrote in a note to clients Thursday.


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The hiring side, by contrast, has yet to accelerate.

Employers have hired an average of 4.36 million people a month through May this year, the government says. That’s 18 percent below the 2006 average of 5.32 million hires a month.

Facing tax increases, federal spending cuts and weak demand overseas, companies have been reluctant to hire aggressively. And many have discovered since the Great Recession that they can manage with fewer staffers than before, thanks in part to machines and software that can do clerical and administrative tasks better and more cheaply than humans can.

Start-up companies, which produce a majority of new jobs, have become stingier about hiring. The average new business employed just 4.7 workers when it opened shop in 2011, down from 7.6 in the 1990s, according to a Labor Department study last year that attributed the drop to technology.

Employers’ reluctance to step up hiring has hampered the jobs recovery. Even at this year’s average monthly pace of 202,000 net job gains, it would take 11 more months to restore U.S. payrolls to their January 2008 peak — before the Great Recession started wiping out jobs.

Still, compared with the lackluster growth of the U.S. economy, the pace of hiring doesn’t look so bad. The economy grew at a subpar 1.7 percent annual rate from April through June, the government said this week. That was better than the revised 1.1 percent growth rate for January through March but still far below a normal annual rate of roughly 2.5 percent to 3 percent.

On Wednesday, the Federal Reserve slightly downgraded its assessment of the U.S. economy, though it expects growth to pick up in the second half of the year.

The cautious message from the Fed might signal that it isn’t ready to slow its bond purchases, which have helped shrink long-term interest rates and encouraged borrowing and spending.

Steady job growth had fueled speculation that the Fed might start scaling back its $85 billion a month in bond purchases as soon as September. Many economists now say the Fed might delay the start of any pullback in purchases until after economic growth has accelerated, perhaps by December.



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