Slowing Job Losses Put Economy on Firmer Footing

By SARA MURRAY

With the smallest job declines in a year, a recovery appears in sight. But businesses are proceeding with caution, uncertain of how strong a rebound will be.

 

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Early signs of a stabilizing labor market added to the belief that the economy could grow in the second half of the year. Much of that growth hinges on whether businesses begin restocking shelves and ramping up their work force -- a tricky decision for companies still dealing with wary consumers.

An increase in the average workweek is a good start, though. In July, it rose 0.1 hours for private workers and even more, 0.3 hours, for manufacturing employees. "That's typically a leading sign that hiring is going to start to recover several months in the future," said Steven Wood, Insight Economics LLC's chief economist.

Some companies' plans reflect the optimism. JTEKT Automotive, an auto-supplies manufacturer in Vonore, Tenn., rehired 65 employees after furloughing 135 workers earlier this year. An uptick in new orders spurred the hiring, said Craig Woodford, president of the Vonore location. But he's concerned it might not last.

"We were just talking about whether that's a bubble associated with 'cash for clunkers' or whether this is sustainable," Mr. Woodford said. "We're also using overtime to give ourselves some of that hedge in case it's just a bubble."

Blow-by-Blow

Click to see graphic on how the recession has reshaped the job market.

Government initiatives, particularly the clunkers program, which offers a $3,000 or $4,500 credit to buy a new car if you trade one in, are expected to boost consumer spending in coming months; economists also have ramped up expectations of growth in third-quarter gross domestic product, some as high as 4%. With only about a third of the $787 billion in stimulus money pumped into the economy so far, the Recovery Act should help add jobs in the second half and into next year.

With the spate of good news -- fewer job cuts, an increasingly stable housing sector, a possible turning point for manufacturing, improved GDP -- Barclays Capital was among the firms to conclude the recession has come to an end. "The recession is dead; long live the recovery," its note to clients said Friday.

Most, though, agree a strong recovery is impossible without the return of U.S. consumers. Whether they will continue to spend after the government programs dry up remains a big question mark, especially if the economy is shedding jobs.

"We have an extremely long way to go before we have a labor market that will allow there to be both robust employment growth and wage growth for the typical worker," said Lawrence Katz, a Harvard University labor economist. Meantime, he said, "workers fearful for their jobs and those out of work will not be robust spenders."

In a separate report, consumer credit declined at a faster rate in June as households cut their borrowing, the Federal Reserve said Friday. Total credit fell at a 4.9% annual rate, worse than the 2.6% decline in May, to $2.5 trillion outstanding.

That leaves other businesses to hold out for clearer signs of a rebound before expansion. Bobcat Co., a global farm- and construction-tools manufacturer, has already laid off between 700 and 800 employees. Another 235 job cuts are in the works.

"We have to adjust to where the market realities are today," said Rich Goldsbury, president of unit Bobcat Americas. "We haven't seen any recovery yet, so we have to adjust our production."

Though recent manufacturing and housing reports have showed the industries nearing stabilization, it hasn't lead to an increase in sales at Bobcat yet. And until it does, the company won't be changing its strategy, Mr. Goldsbury said.

His wariness is part of the reason economists haven't yet ruled out that U.S. unemployment will hit double digits. Indeed, Friday's report had its share of discouraging signs. One in three unemployed people, or five million people, have been jobless for 27 weeks or more.

Write to Sara Murray at sara.murray@wsj.com