Given the out-turn in construction payrolls, an unchanged participation rate, and the similarity between the three-month moving averages in the household and establishment numbers, I believe the June employment report is a clean reading of where labor market conditions stand at this point in the recovery. I continue to believe that higher uncertainty from events in Europe and, to a lesser degree, the potential for significant fiscal tightening in the U.S. early next year are causing firms to postpone investment and hiring decisions.
I estimate that about 75,000 to 100,000 jobs a month are needed to keep the unemployment rate steady and this month’s numbers are a good indication of the balance between employment growth and the unemployment rate. In terms of policy, I do not believe the June 6 report is sufficient to shift the Fed into action at the next FOMC meeting on August 1 as I expect that most FOMC participants expected sluggish job growth in June when taking the decision to continue to the maturity extension program through year-end. I believe the Fed will remain alert and monitor the incoming data flow and we think action at the September FOMC meeting, which will include a press conference and a new set of economic projections, is more likely.
The household survey took on a soft tone as well, with employment rising by 128,000. The household survey is a volatile month-to-month series, so we suggest looking at longer-term trends and note the three-month average gain in household employment stands at 127,000 only modestly better than the 75,000 average gain in headline non-farm payrolls and the 91,000 gain in private payrolls. The unemployment rate held steady as expected at 8.2 percent (8.217 percent unrounded versus 8.206 percent a month earlier), reflecting an unchanged participation rate at 63.8 percent.
As I’ve noted before, small businesses are more dependent on external sources of financing because they have less ability to offset their exposure to financial crises through hedging and have less access to the bond markets. The pace of small-business lending in the United States fell by six percentage points from 2009 to 2010. Small-business lending as a percent of total number of commercial loans hasn’t returned to pre-recession levels, the OECD report stated.
The recently enacted JOBS Act will be a huge boon in small business lending. The new rules coming from the recently passed JOBS Act are designed to reduce the regulatory burden on small banks and will create opportunities that didn’t exist and remove such restrictions.
However, the biggest drag on new job creation will be the Affordable Care Act upheld two weeks ago by the Supreme Court. It creates massive uncertainty that will have businesses putting the brakes on expansion and hiring because the costs are unknown.
Reforms that aid job creation are part of the Job Creators Alliance policy plan for economic growth, and the need to incentivize lending is particularly critical. Our plan for steady, sustainable economic growth covers such areas as education, energy, tax reform, fiscal policy, banking reform, immigration, and international trade. These are all areas that need to be fundamentally addressed if we are to have a comprehensive and cohesive economic recovery.
In particular, we need to create a more stable, consistent environment for businesses and investors. We badly need regulation reform, as current regulations are too onerous, inconsistently enforced, and imposed without any sort of cost-benefit analysis. We need education reform, with more competition among schools and revised curricula that prepares students from all walks of life for the 21st-century workplace.
As business and economic growth run on energy, we need a reform of our national energy policy that includes both traditional and non-traditional energy resources without undue subsidy or protection, ensuring that the market picks winners and losers, not unelected bureaucrats. We need reform of environmental regulations, where cost-benefit is taken into account and restrictions aren’t arbitrarily imposed against necessary but politically less popular resources like coal. We need science-based analysis of environmental impact, not political driven analysis.
Policymakers from both sides should put partisan bickering aside and put their focus on passing reforms and creating programs that will allow businesses to grow the economy and create new jobs. Small businesses are the primary source of the majority of new jobs in America, and they need access to this kind of credit, this kind of reduction in unemployment insurance taxes, and this kind of business-oriented education.
Our policy prescriptions include items like comprehensive tax code reform, the removal of the burden and uncertainty of the federal regulatory regime crippling small businesses, and a rational approach to government fiscal policy and entitlement reform. The Job Creators Alliance’s policy platform can serve as a guide map for leading America back to sustainable, stable economic growth and job creation.
By David Park, Job Creators Alliance Chairman
David Park is Chairman and Co-Founder of Job Creators Alliance (jobcreatorsalliance.org), a non-partisan, non-profit organization based in Dallas focused on developing free market solutions to America’s economic and employment challenges.