American employers simply refuse to hire.
Profits are strong, yet there's something about the view through the windshield that is making companies queasy. The U.S. economy created barely any jobs in May and June, putting an already lacklustre recovery at risk of stalling.
Should economic growth stop, it won't be for lack of fuel: Corporate America is flush with cash. Banks are sitting on excess reserves of some $1.6-trillion (U.S.). The country's biggest companies also are doing well. Profits of the companies listed on the Standard & Poor's 500 index climbed 18 per cent in the first quarter and surged 37 per cent over the final three months of 2010, according to Bloomberg News.
Eventually, companies are going to use some of that money to staff up. For months, that moment has appeared imminent. But something always happens to give executives a reason to resist committing to new salaries and benefits, whether it's volatility in commodity markets, daily headlines about the possibility of a double-dip recession, or Washington's chronic inability to come up with a strategy to narrow the country's budget deficit.
"We're seeing growth, but it doesn't feel good," said David Roberts, chief executive officer of Carlisle Companies Inc., a manufacturer based in Charlotte, N.C., that makes a wide range of products, including brakes, tires and cafeteria trays.
"Everybody is just a little concerned about what the latter part of this year holds, and as we go into next year. We'll continue to be conservative because of that. Where maybe you could go out and hire a few people, we'll hold off to make sure the economy is going to be okay."
Mr. Roberts made those comments in an interview last month, and they proved prophetic.
The U.S. Labour Department said Friday that non-farm payrolls increased by only 18,000 in June, a gain so small that it's impossible to say with confidence that the economy added any jobs at all. Making a dark picture darker, the department slashed its May estimate to 25,000, making the second quarter the weakest period of job creation since a stretch of four consecutive monthly declines in hiring ended in October, 2010.
"The June payroll report shows that companies continue to focus on cost cutting instead of expanding their businesses in search of profits," Steven Ricchiuto, chief economist at Mizuho Securities in New York, said in a note. "This confirms that CEOs have no confidence in the sustainability of the recovery/expansion."
Stock markets tumbled after the latest jobless report was released in Washington, and the U.S. dollar fell. The consensus estimate among Wall Street economists was for an increase of 105,000 jobs last month. The smallest forecast in a poll of 85 analysts by Bloomberg was for a gain from May of 40,000.
A separate survey by the Labour Department of households showed the unemployment rate rose to 9.2 per cent from 9.1 per cent in May. By contrast, Canada's jobless rate held steady at 7.4 per cent, while the number of people employed increased by 28,000.
The persistent weakness of the labour market is becoming a serious political issue for U.S. President Barack Obama.
Respected Democratic economists, including Lawrence Summers, a former treasury secretary who also served as Mr. Obama's top economic adviser, and Laura Tyson, the former head of Bill Clinton's Council of Economic Advisers, are calling for further stimulus measures to keep an acute problem from becoming chronic. Some 44 per cent of the unemployed have been without work for more than 27 weeks.
Academic research shows that the longer people remain without a job, the harder it becomes to get a new one as their skills deteriorate.
However, the debate in Washington isn't about stimulus. The Republican leaders that hold the balance of power in Congress say they will refuse to lift the legislative debt limit without assurances that Mr. Obama and Democratic lawmakers will endorse significant spending cuts.
The President has summoned lawmakers to the White House to continue negotiations on Sunday. The U.S. Treasury Department says it will be unable to pay the country's existing creditors after Aug. 2 without renewed authority to borrow money.
"The sooner that the markets know that the debt-limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner that we give our businesses the certainty that they will need in order to make additional investments to grow and hire," Mr. Obama told reporters Friday.
Joblessness is weighing on demand. James Kierstead, co-founder and chief financial officer of Blue Falls Manufacturing Ltd., a Thorsby, Alta.-based maker of outdoor spas and hot tubs, said the company's factory in Washington State is making about a dozen units a day. That's about the quarter of what the facility is capable of producing.
"All my retail operations in the U.S. have fewer people coming through the door," Mr. Kierstead said. "The recovery in the U.S. is a lot slower and going to take a lot longer than people think."
At Carlisle Companies, meanwhile, profit increased to $146-million in 2010 from $145-million in 2009. Profit continues to grow this year, in large part because the company closed some factories while continuing to boost sales.
The company's long-term goal is to double its current sales of about $2.5-billion by doing more business overseas. That will eventually require more people. But for the next couple of years, Mr. Roberts says he can handle new orders through productivity gains.
"We'll be doing more with fewer people," he said.