More jobs needed to lift consumers, drive recovery

[August 06, 2010]  WASHINGTON (AP) -- Faster job growth is needed to accelerate the recovery, but economists worry the government's July employment report won't show strong gains.

Without more jobs, Americans are likely to remain cautious with their spending, restraining the economic rebound. But without more spending, companies will likely be slow to hire.

The report will be released Friday morning.

"To break out of this, we need both employment and consumption to come up together," said Nigel Gault, an economist at IHS Global Insight.

While the economy has grown modestly in the past year, much of the rebound is due to temporary factors. They include government stimulus spending and companies' restocking of warehouses depleted in the recession.

More hiring and rising incomes would put the recovery on a sustainable footing. But Friday's jobs report may not show much of an increase.

Companies are forecast to have added a net total of 90,000 private-sector jobs in July, according to economists surveyed by Thomson Reuters. That's not nearly enough to bring down the unemployment rate, which is expected to rise to 9.6 percent from 9.5 percent.

Overall, the economy is likely to lose a total of 65,000 jobs because of the end of temporary positions with the U.S. Census Bureau.

Friday's report is being closely watched by the Federal Reserve as it considers ways to energize the recovery. A weak jobs report would put pressure on the Fed to take new steps to boost the economy and keep interest rates at record lows when it meets next week.

Economic reports Thursday showed that the economic recovery is still weak. Retailers around the country posted a sales increase of just 2.8 percent for July compared with a year earlier -- when the economy looked much bleaker than it does today.

The July figure, released by the International Council of Shopping Centers based on results from 31 chains, was the fourth straight month of weak retail numbers. And in a reminder of how weak the job market is, the government said Thursday that first-time claims for unemployment benefits rose last week to their highest level in four months.

Corporate net income rose sharply in the second quarter, but businesses aren't using the proceeds to ramp up hiring. Companies in the S&P 500 index reported a 46 percent increase in net earnings for the second quarter, compared to a year earlier.

But many employers are uncertain about the future course of the economy. Some are concerned sales will slow once government stimulus and other temporary factors fade. Others fear what will happen if federal income taxes are allowed to rise next year as tax cuts enacted by President George W. Bush expire.

"People have a long worry list they're looking at," said Ethan Harris, chief economist at Bank of America Merrill Lynch.

Showing caution, some companies have resorted to hiring mostly temporary workers. Temporary help services have added 192,300 jobs this year, nearly a third of the net gain of 593,000 private-sector jobs.

That increase shows "businesses are taking the least committed way" of increasing their work forces, Harris said.

Vehicle parts maker Federal-Mogul Corp., for example, has hired 1,400 workers in the United States in the past year, as car sales have grown. But many of those hires are temporary, CEO Jose Maria Alapont said. That allows the company to stay flexible and reduce its work force if the economy sours, he said.

"There is a very clear recovery during the first half of the year, but there are still questions whether that will continue in the second half," he said in an interview last month.

The Southfield, Mich., company cut its global work force by 11,000 in 2008 and 2009 to about 39,000.

Some companies are adding permanent workers. The hospital chain HCA Inc. currently has 8,300 open positions, said company spokesman Ed Fishbough. That includes nurses, physicians and information technology professionals needed to build HCA's ability to handle electronic medical records. HCA employs about 190,000 people in the U.S. and the U.K.

Many companies are still laying off employees. FBR Capital Markets, an investment bank based in Arlington, Va., cut its work force by about 15 percent in early July to about 500 employees, saying it needed to reduce costs. In the second quarter, its net loss deepened 18.5 percent to $25.8 million despite an increase in revenue.

[Associated Press; By CHRISTOPHER S. RUGABER]

AP Business Writers Tali Arbel in New York and Tom Krisher in Detroit contributed to this report.

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