Job creation is dead. Just ask the 12.6 million or so Americans searching for work or the over 23.0 million who are unofficially unemployed. Then there are also the tens of millions who are working only part-time or who are underemployed, working at menial jobs.
We are seeing more college graduates working at low-level jobs just to pay the bills. This is the current situation, and it could take years to resolve. There are also the mounting student loans that will take decades to pay, but then that’s another story.
The reality is that despite what you hear, job creation is poor. The June job creation numbers pointed to the creation of 80,000 new jobs and the unemployment rate holding at a stubborn 8.2%. Job creation in the second quarter was the weakest quarterly reading in two years, and with the upcoming presidential election, it will not be an easy path for the Democrats. Clearly much of the election discussion should be centered on job creation.
The jobs market is even worse when you consider that the general consensus among economists is the country would need to add 500,000 jobs monthly to make a dent in the unemployment rate and get it moving towards full employment at around six percent.
President Barack Obama has asked Congress to extend the Bush-era tax cuts to those making less than $250,000 a year, which represents the majority of working Americans. The current plan is scheduled to end at the end of this year. Republican rival Mitt Romney wants the cuts to apply to all income earners. While I’m not here to take a side, the tax cuts are critical, especially to the low- to middle-class Americans. Without the extra cash, this key spending group will likely be hesitant to spend, which in turn would restrict the money flow into the retail sector and ultimately the economy.
While the extension of tax cuts brings hope, there continues to be a deep-rooted structural issue that needs to be addressed, such as the movement of jobs to outside the U.S. border. Take a look at India and the Philippines, and you’ll see tens of thousands of lost American jobs. Move to the assembly lines in China, and you’ll realize the amount of lost jobs. America is failing at job creation. Of course, you can always tell yourself how much better you have it compared to the massive unemployment in the eurozone, including over 25.0% unemployed in both Greece and Italy. But that’s Europe.
The problem is the government will be hard pressed to find major capital for projects and job creation given the nearly $16.0 trillion in U.S. national debt.
Also weak job creation will impact the demand for housing and big-ticket items. We continue to see a soft housing market with declining prices. Consumers are also not spending freely on durable goods as they would in a healthy economy.
In all, we need to see better job creation and the quality of the job must improve. There are far too many unemployed professionals working at menial jobs.
The second-quarter job creation readings are a red flag and could signal less hiring due to a feeling among companies that the future economic growth may be slowing, and this is not good.
Alcoa, Inc. (NYSE/AA) managed to beat its second-quarter revenues and earnings per share slightly, but the numbers were below those from the same quarter a year earlier. I’m not impressed with the results and view them as a negative signal for the second quarter, which I discussed a week ago. (See “Don’t Expect Much in Second Quarter Earnings.”)