June employment numbers show market still vulnerable

Bull or bear, Republican or Democrat, economic optimist or pessimist, there are plenty of data in the recent jobs reports to support your position.

However, it would be a stretch to suggest the employment situation in the United States is firing on all cylinders.

“Companies have again become extremely risk averse. They are worried about health care costs, taxes, regulatory burdens and slowing sales. Abroad, concerns about Europe and China are weighing on companies, particularly large firms. This is a time to hoard cash and protect profit margins rather than to make investments or increase hiring,” said Dr. Lynn Reaser, chief economist at Point Loma Nazarene University's Fermanian Business and Economic Institute.

Reaser's positions are backed up by Friday's employment report for June from the Department of Labor. It said U.S. payrolls rose by 80,000, well below expectations. The hope the numbers would be significantly higher was raised by the ADP National Employment Report which announced an increase of 176,000 private sector jobs in June.

It is not unusual for the ADP report and Department of Labor survey to be dramatically different as was the case again in June.

One thing the ADP report indicates is the bulk of new job creation is coming from small- and medium-sized business rather than big companies. The June report shows 93,000 of the 176,000 it calculated came from small business and another 72,000 from medium-sized companies. That leaves just 11,000 from large businesses.

“Two years ago, the hiring activity in the U.S. was driven primarily by large employers recruiting in metropolitan areas for a handful of industries or job functions. Today, we see job listings in all industries, market sizes and company sizes. The outlook for the remainder of this year is better than 2011, but it will follow the same pattern of steady progress rather than a surge in job growth,” said Matt Ferguson, CEO of CareerBuilder.com, an online job search service.

His report showed the region with the most optimistic outlook for jobs is the West, where 47 percent of companies saying they plan to add full-time, permanent employees during the next six months, up from 35 percent a year ago at this time.

“San Diego does have some advantages in its key clusters of tourism, technology and health care. However, defense contractors are remaining very cautious as they wait for budget developments in Washington and the possibility of automatic spending cuts possibly going into effect early next year,” said PLNU's Reaser.

Perhaps the most encouraging sign for the job market is a report showing fewer companies are planning to cut jobs, an indicator that the worst may be over. Challenger, Gray & Christmas, a Chicago-based outplacement consulting firm, announced last week planned layoffs in June fell to a 13-month low of 37,551, down 39 percent from the previous month. However, compared to the first six months of 2011, layoff announcements are still 15 percent higher this year.

“Even with recent signs that the economy is headed for another summer slump or worse, including the first contraction in manufacturing activity in three years, employers appear reluctant to shed too many workers. While it does not take long to shrink payrolls, it can take a significant amount of time to rebuild them, particularly as reports of the growing skills gap becomes more widespread,” said CEO John Challenger.

Attention will now be focused on Ben Bernanke and the Federal Reserve. Traditionally, the Fed goes away in election years. However, it could be different this time around.

“The closer we get to Election Day the more the Fed will be exposed to criticism about political motivations if they engage in new policy actions. An increasing trend in the unemployment rate would certainly catch the Fed's attention,” said Robert Dye, of Comerica Bank.