Private-Sector Hiring Remains Weak Despite August's Gain

Despite the dose of optimism Friday's jobs number brought to Wall Street, the backbone of the US employment system remains weak at best.

Winston Davidian | Photodisc | Getty Images

Private-sector hiring grew at a nearly negligible pace in August, and even with a net addition of 67,000 jobs isn't nearly robust enough yet to start eating into the 9.6 percent unemployment rate bedeviling the economy.

Friday's data, coupled with a report earlier in the week from ADP and Macroeconomic Advisors actually showing a decrease in private-sector jobs, hardly signals a return to growth for the lackluster jobs market or the broader economy.

"In the post-crisis world, the economy's going to look a lot different than we're used to seeing. Gains are going to be slow in coming," said Zach Pandl, economist at Nomura Securities in New York. "This report exceeded a very low hurdle. Market expectations were extremely downbeat. But I think policy makers are still going to be disappointed with this result."

Equity markets rejoiced at the Labor Department report showing that nonfarm payrolls fell 54,000 in August, well below the expectations of 110,000. The number was the exact same as July, which was revised from its original report of a 131,000-job loss.

Government layoffs, primarily from discharged Census workers, accounted for the negative net total, as 114,000 counters were laid off.

Stocks took off on the jobs data, sending the major averages up as much as 1.3 percent, before the Institute for Supply Management's weaker-than-expected readingon service sector growth cooled things off.

"It is a real testament to the sentiment in the market right now that over one year into an economic recovery, capital markets are getting absolutely euphoric over an employment report that still shows a fundamentally weak labor market, with the momentum still soft," wrote Bank of America Merrill Lynch economist Neil Dutta in a note to clients. "For the third year in a row, this is still going to be a belabored Labor Day weekend."

Dutta pointed out that even though the private jobs growth might look good on paper, the overall picture will remain murky as 82,000 more Census workers are still to be let go. Moreover, the private sector growth rate has been reduced to plus-78,000 from plus-150,000 earlier in the year when the economic recovery appeared to be gaining steam.

Among the positive aspects of the report were a steadying in the average work week at 34.2 hours and hourly wage growth of 0.3 percent. Some of the glaring negatives included the growth of the so-called U-6 unemployment measure, a broader gauge of the jobless rate that includes discouraged workers as well. The number swelled to 16.7 percent, the highest since April.

Yet the report could take double-dip fears off the tablefor the time being and likely sideline the Federal Reserve unless the economic numbers take a dramatic turn worse.

Paul Ashworth, senior US economist at Capital Economics in Toronto, found the report "reassuring" but said plenty of obstacles remain for the economy.

"[T]his report will help to ease any remaining fears about a double-dip recession," he said in an analysis for clients. "Nevertheless, a year into the recovery, economic growth is still very lackluster and likely to remain so. Under those circumstances, we expect the unemployment rate to remain very high for several more years."

And despite the better-than-terrible tack the jobs news took, there remains plenty of unease in the heartland about when companies will start hiring again.

CBIZ , a Cleveland-based small businesses services firm, released its monthly Small Business Employment Index, which showed a 1.0 percent decrease in hiring in August. About 28 percent of the 2,964 companies surveyed said they cut jobs in August—compared to 24 percent in July—as uncertainty continues to be the theme, particularly for the companies that employ fewer than 300 employees surveyed by CBIZ.

"They're still going to be very cautious," said Philip Noftsinger, business unit president for CBIZ Payroll Services. "They probably will bring back some of their prior workers in part-time roles. At this stage it's such a cautious employer base out there. It's going to take a string of good news to move that number."

In morning remarks at the White House, President Obama said his administration will be announcing measures to improve the employment environment, including an extension of middle-class tax cuts and more spending for small business.

"There is no silver bullet that is going to solve all of our economic problems overnight," Obama said. "But there are certain steps that we know will make a meaningful difference for small businessmen and women, who are primary drivers of job creation."