Haverford Prof: May's Slow Job Growth an Economic Harbinger

An economist at Haverford College is fearful that the economy may plummet even more in the coming months, after reports late last wek showing a slowdown in U.S. job growth and the steady unemployment rate for May.

“The concern is not so much over the amount of increased unemployment this month as the apparent confirmation that the decline in unemployment (and growth in jobs) has stalled and a concern that the numbers may turn much worse in the upcoming months,” wrote Paul Cichello, a visiting associate professor of economics at Haverford College, in an email, rsponding to questions about reports on the U.S. economy.

The country gained 54,000 new, nonfarm jobs in May—significantly smaller gains than the prior three months, when new jobs per month averaged 220,000, according to a U.S. Bureau of Labor Statistics report that was issued Friday, June 3.

Unemployment increased slightly from 9 percent in April to 9.1 percent, or 13.9 million unemployed people, in May, the Labor Statistics report stated.

The number of non-farm jobs and the unemployment rate “are giving bleaker pictures than last month,” Cichello wrote.

“Both come from surveys with a bit of noise attached to them, so if one suggests slightly negative news and the other suggests stable/good news (as they did last month) then people might not [be] as nervous,” Cichello wrote. “But this month, unemployment suggested it was stable or worse and non-farm employment showed a large decline.”

Of the 13.9 million unemployed people reported in May, the number of long-term jobless workers—anyone who has been unemployed for 27 weeks or more—increased by 361,000 to 6.2 million in May.

Cichello said the state of the economy is cyclical, but he also implied that psychology plays a role in the economy’s ups and downs.

“The economy works in cycles," he explained. “If I am in business, I will hire if I think people are ready to buy more of my product/service. If I am worried they may not buy it, I [will be] less likely to hire on new help and may consider laying people off.

“But, when I pull back, that means fewer people are at work earning income and that makes the demand for my product and everyone else’s products go down just a bit,” Cichello wrote. “This makes other businesses nervous and can lead to a downward spiral.”

The rsult is that the economy may plummet even more in the coming months, Cichello suggested.

“A few months ago, the hope was that we were spiraling upward—with increased income and consumer spending and businesses investing and hiring more employees,” Cichello wrote. “The fear now is that we may be slipping into a downward spiral and the news next month will be even worse.

“We'll have to wait and see.”