June Jobs Report Shockingly Bad, 5 Reasons Why

By Hao Li

The June jobs report was horrible. The US economy only added 18,000 jobs, the lowest in 9 months, and the unemployment rate climbed to 9.2 percent.

The US economy needs to create at least 100,000 jobs each month to keep up with the expansion of the labor market (children growing up and immigrants coming in). If jobs creation continues to drag on at this low rate, the unemployment rate will continue to creep up.

Two years since the official (NBER-declared) end of the recession, the pace of US economic recovery is frustratingly slow and disappointed. The jobs market, in particular, has been weak.

In fact, many economists have deemed the current recovery the 'jobless recovery.'

Below are 5 reasons for the poor performance of the jobs market.

1. US Economic Weakness

When it comes down to it, employers aren't hiring because the US economic recovery is weak. Why is the economic recovery weak? The last decade, and arguably the last 30 years, has been a giant bubble of asset inflation that enabled America to spend way more than it can afford. Now, country is simply paying the price. Despite what politicians say, there aren't a lot of magic tricks that can make it better.

2. Emerging Market Dominance

Whatever global economic recovery there is, it's mostly happening in emerging market countries like China because they were the savers before the global financial crisis. Now, they're doing the spending.

Much of what they're spending on is infrastructure building and food. That's why companies like Caterpillar (NYSE:CAT) are doing so well. Unfortunately for the US jobs market, those demands only spark booms in commodities and capital equipment. So while the executives and shareholders of companies like Caterpillar are raking it in, the companies themselves aren't doing much hiring.

3. Emerging Market Slowdown

High flying emerging market countries, especially China, have really clamped down on government stimulus and tightened monetary policy, which arguably was responsible for their high rates of growth in the first place.

They're trying to cool things down, which is smart because it cuts down on wasteful and inefficient activities. For the US jobs market (particularly in the manufacturing sector), though, that's more bad news because it's taking away whatever boosts emerging market economies provided to the US jobs market in 2010.

4. Employment Frictions

There are two major obstacles that prevent Americans from freely accepting jobs.

One is the poor real estate market, which prevents some of them from selling their houses at financially viable prices and relocating for new jobs.

Another is labor skill mismatch for people who are laid off from bubble industries like construction, real estate, and finance. For construction, especially, these jobs aren't coming back for a while (or are gone forever) and many former senior construction workers are having trouble learning new skills.

5. Regulatory Uncertainty

The US government spends money it doesn't have; at some point, that has to a stop.

Will the government raise taxes? If so, on who? Will it cut benefits? If so, will businesses be made to pay for them? What about health care and how much that'll cost employers?

The lack of certainty makes employers hesitant to invest in semi-fixed assets like employees.

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